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Chapter 5

Chapter 5. Section 1. The Law of Supply . Supply: the amount of goods available The law of supply is when goods are produced according to their price.

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Chapter 5

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  1. Chapter 5 Section 1

  2. The Law of Supply • Supply: the amount of goods available • The law of supply is when goods are produced according to their price. • The law of supply begins with the producers, if prices are high, they have to produce more to make a profit. When prices drop, they must make less. www.pearsonsuccessnet.com Page 101 Prices increase Supply increase Prices decrease Supply decrease

  3. Higher Production • When prices go high, in order to make a profit, more of that good needs to be produced. If prices are dropped, less need to be produced. That is when entrepreneurs become discouraged. • If ceteris paribus applies, the raising of the profit benefits the entrepreneur and the producer. www.pearsonsuccessnet.com page 102 - 103

  4. The Supply Schedule • The supply schedule shows the relationship between the price and the quantity supplied for a certain good. • The supply schedule compares two factors that are not necessarily constant. • The schedule shows specific sets of conditions www.pearsonsuccessnet.com page 103 • www.pearsonsuccessnet.com page 103

  5. Supply graph www.pearsonsuccessnet.com page 103

  6. A rise or fall, will change the input and output of a supply schedule. • When a factor besides the price has an affect, a whole new supply schedule needs to be made. • To generalize a supply schedule within the market, a market supply schedule is created. • A market supply schedule shows the relationship between the prices and quantities of a product within firms in a market. • www.pearsonsuccessnet.com page 103-104

  7. David L. Perez Ch. 5 Sec. 1 03-21-2011 Period 2

  8. Supply and Elasticity • Elasticity of demand measures how consumers will react to change in price. Elasticity of supply is based on the same concept. • Elasticity of supply is a measure of the way supplies respond to a change in price. • The labels elastic, inelastic, and unitary elastic represent the same values of elasticity of supply as those of elasticity of demand • When a percentage change in price is perfectly matches by an equal percentage change in quantity supplies, elasticity is exactly one, and supply is unitary elastic http://www.pearsonsuccessnet.com

  9. Elasticity of Supply and Time • The key factor in determining whether the supply of a good will be elastic or inelastic is time. • In short runs, a firm cant easily change its output level, so supply is inelastic. • In long runs, firms are more flexible, so supply is more elastic. http://www.pearsonsuccessnet.com

  10. Elasticity of Supply in the Short Run • A example of a business that has difficulty adjusting to a change in price in the short term is an orange grove. • In the short term, the grower could take smaller steps to increase output. • In the short run, supply is inelastic whether the price increases or decreases. http://www.pearsonsuccessnet.com http://www.google.com/images

  11. Elasticity in the Long Run • Just like demand, supply can become ore elastic over time. • An example is a farmer that sells tomatoes that cant increase his output. So he begins to plant more and more trees overtime until he increases his supply. As this process becomes more effective, he will be able to sell more tomatoes at a higher market price. http://www.pearsonsuccessnet.com http://www.google.com/images

  12. “Chapter 5, Section 2” Danny BaezaMarch 23rd, 2011 Period 2EconomicsMrs. Mitat

  13. Labor and Output. The owners of firms need to consider the number of employees they decide to hire because it will have an effect on the firm’s total production. At one point in time, the hiring period, the total production of the firm will decrease, in conjunction to the amount of people the owner decides to hire. Prentice Hall Book

  14. Increasing Marginal Returns. “Increasing Marginal Returns” are when workers find a specialization in something. For example, a firm that produces beanbags, have workers specifically dealing with the physical production of the bean bag while the other workers are specified in “tailoring” and sew up the bean bag. Each worker has a specific set of skill that pertains to certain tasks in the firm. Prentice Hall Book

  15. Diminishing Marginal Returns. Diminishing Marginal Returns is when the marginal production is decreasing. Why? – The reason of the decrease of production is because a firm has a limited amount of resources. For example, lets assume the firm has two sewing machines but there are three workers, the first two workers will be able to use the machines but the third one will not, decreasing the marginal production of that firm. Prentice Hall Book

  16. Negative Marginal Returns. Is when the firm does not realize when the marginal production is going down and they continue hiring people. The workers then have to wait more, so the marginal production will become negative.

  17. Setting Output. Marginal Revenue and Marginal Cost: - The Marginal Revenue is the money that the firm has to spend to make the product and the marginal cost is the money that the people pay for the product. So if the firm wins $12 dollars in the fourth beanbag, and just spend $7 to make a new one, they are going to make more bags and earn more money. Prentice Hall Book

  18. Responding to Price Changes. Responding to Price Changes is when the people buy too much of the product, making the demand higher and the price increase. Instead of winning $12 per bag, one will win, $22 per bag, so the firm will start making more and more money per bag per hour. Prentice Hall Book

  19. “Resources” All the information found in this presentation was retrieved from the Prentice Hall Book of Economics.

  20. Chapter 5 Section 2 Production Costs & The Shutdown Decision

  21. Production Costs Consists of two types of costs • Fixed costs • Variable costs

  22. Fixed Costs • Definition: A cost that does not change, no matter how much of a cost is produced. • Most involve the production facility, the cost of building and equipping a factory, office, store, or restaurant. • Examples: rent, machinery repairs, property taxes on a factory, and the salaries who keep the business running even when production temporarily stops. http://simplestudies.com/repository/lectures/ch9_total_fixed_cost_graph.gif

  23. Variable Costs • Definition: A cost that rises or falls depending on how much is produced. • Increase costs to produce more: Purchase more resources and hire workers to produce more. • Cut back costs: Stop purchasing resources or cut back workers hours weekly. • Examples: Cost of labor, electricity, and heating bills. http://simplestudies.com/repository/lectures/ch9_variable_cost_graph.gif

  24. Total Cost • Definition: The total of fixed costs and variable costs. http://image.wistatutor.com/content/feed/tvcs/fixed20cost.JPG

  25. Marginal Cost • Definition: The cost of producing one more unit of a good. http://www.peoi.org/Courses/mic/Resources/Image122b.gif

  26. The Shutdown Decision • Decision made when a factory is losing money constantly. Whether to keep it running or shutdown. • The factory should stay open when the total money made from the good or service produced is greater than the operating cost.

  27. Alfredo Rodriguez Period 2 Economics Chapter 5Section 3 Changes in Supply

  28. Input Cost • Any change in the cost of an input used to produce a good. • Rise in Cost: Supply will fall • Fall of Cost: Increase of Supply Source: Economics Book

  29. Effects of Rising Cost • Suppliers set output (Products or Service) where $ = Marginal Cost • Marginal Cost includes the cost of input that go into production. • Increase in Input will = Marginal Cost to rise. Source: Economics Book

  30. Technology • Input cost can also drop. • Advances in technology can lower production cost • Technology: -LowersCost -Increase Supply at all price levels. Source: Economics Book

  31. Government Influence on Supply • Government can affect supplies. • By rising or lowering costs -They encourage Entrepreneurs or Industries. Source: Economics Book

  32. Subsidies • A method government uses: Government pays or supports a business or market. • Government in developing countries protect growing industries with subsidies. • In the US, Farm subsidies are controversial, since government pays farmers to take land out of cultivation to keep prices high. Source: Economics Book

  33. Taxes • Government can reduce the supply of some goods by placing an Excise tax. • Excise Tax: Is tax that is placed upon the production or sales of a good. • It increases production cost by adding an extra cost for each unit sold. • An increase in cost, produces that excise tax decrease the price level for supplied goods Source: Economics Book

  34. Regulation • Government regulation often has the effect of rising costs. • Regulation is when government intervenes in the market, affecting price, quantity or quality of goods. Source: Economics Book

  35. Supplying the Global Economy • A country produces goods and services, and these can later be imported to another, to be sold to consumers. • Supply of Imported Goods is affected by any changes within the import country. • Total supply of a product equals the sum of imports and domestically produced products. Source: Economics Book

  36. Future Expectations of Prices • Expectations of higher prices will reduce supplies and increase them later in time. • Expectations of Lower Prices, will have an opposite effect. • According to Inflation (Which is the increase of prices, as the value of money lowers); Suppliers decide to withhold their goods, so their value rises. • This method of storing goods, can dramatically drop supply. Source: Economics Book

  37. Number of Suppliers • If more suppliers enter the market to produce a certain good, the market supply of the good will rise. • If suppliers stop producing a good or leave the market, the supply of a certain good (depending on what was produced) will decline. Source: Economics Book

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