Drill 9/17Determine if the following products are elastic or inelastic:1. A goods changes its price from $4.50 to $5.85 and the demand for the good goes down 13%.2. A goods price goes down 26% and the amount of the good demanded goes from 32 to 47.3. Consumers demand for a product goes from 58 units bought to 73 units bought when the store lowered the price from $186 to $150.

1. A goods changes its price from $4.50 to $5.85 and the demand for the good goes down 13%.

Drill Answer

Percent change in price$5.85 - $4.50 = $1.35$1.35 ÷ $4.50 =.3.3 x 100 = 30

Calculating elasticity13 ÷ 30 = .43

The good is inelastic.

Drill Answer2. A goods price goes down 26% and the amount of the good demanded goes from 32 to 47.

Percent change in demand47 - 32 = 1515 ÷ 32 = .47.47 x 100 = 47

Calculating elasticity47 ÷ 26 = 1.807

The good is elastic.

Drill Answer3. Consumers demand for a product goes from 58 units bought to 73 units bought when the store lowered the price from $186 to $150.

Percent changein price$186 - $150 = $3636 ÷ 186 = .194.196 x 100 = 19.6

Calculating elasticity

25.8 ÷ 19.6 = 1.32

The good is elastic.

Percent changein demand

73 – 58 = 15

15 ÷ 58 = .258.258 x 100 = 25.8

1. What is a supply schedule?

2. What is the law of supply?

3.What causes supply to change?

The Law of SupplyThe Law of Supply = the higher the price, the larger quantity produced and the lower the price, the smaller quantity produced Higher Production – existing firms

produce more to gain a greater profit Market entry – new firms will enter

the market because of the greater profitability of the good

Supply ScheduleSupply schedule = a table that lists the quantity of a good that a producer will supply at each price in the market Market supply schedule = shows the

quantities supplied by all producers in the market

Supply SchedulePrice Quantity

Supplied$20 4$40 10$60 12$80 15

$100 20

Supply Curve

$80

$60

$40

$20

01 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

PRICE

QUANTITY

$100

•

•

••

•S1

Supply curves always slopes upwards to the right (direct relationship)

Costs of Production

Labor and OutputLabor costs money so each worker must be worth the money that is paid Producers measure the marginal

product of labor The change in output from hiring one

or more workers

Drill 9/181. What is the law of supply?

2. What type of relationship is the law of supply?

3. What is a supply schedule?

Marginal Product of LaborWorker 1

Output 4 beanbags per hour MPL = 4

Worker 2 Output 10 beanbags per hour MPL = 6

Worker 3 Output 17 beanbags per hour MPL = 7

Increasing Marginal returns – A level of production in which the marginal product of labor increases as the number of workers increases.

1) The Law of Supply = the higher the price, the larger quantity produced and the lower the price, the smaller quantity produced

2) Direct Relationship

3) Supply schedule = a table that lists the quantity of a good that a producer will supply at each price in the market

Marginal Product of LaborWorker 1

Output 4 beanbags per hour MPL = 4

Worker 2 Output 10 beanbags per hour MPL = 6

Worker 3 Output 17 beanbags per hour MPL = 7

Worker 4 Output 23 beanbags per hour MPL = 6

Worker 5 Output 28 beanbags per hour MPL = 5

Worker 6 Output 31 beanbags per hour MPL = 3

Diminishing Marginal Returns – A level of production in which the marginal product of labor decreases as the number of workers increase.

Marginal Product of LaborWorker 1

Output 4 beanbags per hour MPL = 4

Worker 2 Output 10 beanbags per hour MPL = 6

Worker 3 Output 17 beanbags per hour MPL = 7

Worker 4 Output 23 beanbags per hour MPL = 6

Worker 5 Output 28 beanbags per hour MPL = 5

Worker 6 Output 31 beanbags per hour MPL = 3

Worker 7 Output 30 beanbags per hour MPL = -1

Marginal Product of Labor

NEGATIVE MARGINAL

RETURN

Production CostsFixed Costs A cost that does not change, no matter how

much of a good is producedVariable Cost A cost that rises or falls depending on how

much of a product is producedTotal costs = fixed costs + variable costsMarginal cost The cost of producing one more unit of a good

Changes in Supply

Input CostsA rise in the cost of the factors of production will result in a rise in costs as a whole for the firm so they will cut production Shift to the left

Advances in technology can lower production costs causing an increase in production Shift to the right

Setting OutputProducers look for the optimum amount of output to maximize their profit Not necessarily the most outputThe optimum output is found when marginal costs equal the market price.

Government’s Influence on Supply

Subsidies = government payment that supports a business or marketExcise taxes = a tax on the production of a good for each unitRegulation = government intervention in a market that affects price, quantity, or quality of a good

Other FactorsSupply in the global economy

Future expectations of prices

Number of Suppliers

What happens when you are producing to a point where your marginal costs equal the marginal revenue (market price) but the factory is still losing money? SHUT DOWN If the total revenue is greater than

the cost of keeping it open (variable costs) do not shut down

Understanding SupplySupply = the amount of goods available

Drill #1. What is the marginal product of labor?

2. What are decreasing marginal returns?

3. What is a marginal cost?