Supply. The concept of supply is based on voluntary decisions made by producers. Supply; the...
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Transcript of Supply. The concept of supply is based on voluntary decisions made by producers. Supply; the...
CHAPTER 5Supply
WHAT IS SUPPLY? The concept of supply is based on
voluntary decisions made by producers. Supply; the amount of a product that
would be offered for sale at all possible prices that could prevail in the market.
Law of Supply– suppliers will normally offer more for sale at high prices and less at lower prices.
INTRO TO SUPPLY All suppliers of economic products must
decide how much to offer for sale at various prices--- a decision made according to what is best for the seller.
What is best depends upon the price of producing the item.
CONT’D The Supply Schedule; a listing of the
various quantities of a particular product supplied at all possible prices in the market.
Supply curve; a graph showing the various quantities supplied at each and every price that might prevail in the market.
Ex.Supplier = offering your services at your jobEconomic product = your laborYou may supply more labor for higher wage.
CONT’D Market supply curve; the supply
curve that shows the quantities offered at various prices by all firms that offer the product for sale.
Change in Quantity SuppliedQuantity supplied; the amount that
producers bring to the marketChange in quantity supplied; change in
amount offered for sale in response to a change in price.
CHANGE IN SUPPLY Change in supply; suppliers offer
different amounts of products for sale at all possible prices in the market. Cost of inputs Productivity Technology Taxes and subsidies
Subsidy; government payment to a business to encourage or protect a certain type of economic activity.
Expectations Government Regulations Number of sellers
Quantity Supplied; amount producers bring to
market at any given price
ELASTICITY OF SUPPLY Supply elasticity; a measure of the
way in which quantity supplied responds to a change in price.
CH. 5 SECTION 1 REVIEW
1. Describe the difference between supply schedule and supply curve.
2. Describe how market supply curves are obtained.
3. List AND explain the factors that can cause a change in supply.
4. According the Law of Supply, how does price affect the quantity offered for sale?
SECTION 2: THE THEORY OF PRODUCTION Producing and economic good or service
requires a combination of land, labor, capital, and entrepreneurs.
The theory of production deals w/ the factors of production and the output of goods and services.
CONT’D
The theory of production generally is based on the short run; a period of production that allows
producers to change only the amount of variable
input called labor.
This contrasts w/ the long run, a period of
production long enough for producers to adjust
the quantities of all their resources, including
capital.
Ex. Ford MotorsHires 300 more
workers=short runBuilds new factory =
long run
CONT’D Law of Variable Proportions; in the
short run output will change as one input is varied while the others are held constant. Ex. Salt(input) added to a meal.
Raw materials; unprocessed natural products used in production.
Total product; total output produced by a firm.
Marginal product; the extra output caused by one more unit of variable input.
THREE STAGES OF PRODUCTION
Increasing returns
Diminishing returns
Negative returns
SECTION 3: COST, REVENUE, AND PROFIT MAXIMIZATION Because the cost of inputs influences
efficient production decisions, a business must analyze costs before making decisions.
Cost is divided into categories Fixed cost– the cost that a business
incurs even if the plant is idle and output is zero. Includes salaries, interest charges on bonds,
rent payments on leased properties, and taxes, and depreciation.
CONT’D Variable costs; a cost that changes
when the business rate of operation or output changes.Labor and raw material (overtime &
electricity) Total costs; sum of fixed and variable
costs Marginal costs; extra cost incurred
when a business produces one additional unit of a product.
APPLYING COST PRINCIPLES Self service gas station vs. internet
stores E-commerce—electronic business or
exchange conducted over the internet.
MEASURES OF REVENUE Businesses use two key measures of
revenue to find the amount of output that will produce the greatest profits.
Total revenue– the number of units sold multiplied by the average price per unit.
Marginal revenue– the extra revenue associated with the production and sale of one additional unit of output.
MARGINAL ANALYSIS Compares the extra benefits to the
extra costs of an action. Break-even point is the total output
or total product the business needs to sell in order to cover total costs.
Profit-maximizing quantity of output is reached when marginal costs and marginal revenue are equal.