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Understanding Supply and the Law of Supply

Learn about the concept of supply and the law of supply, including the supply schedule, supply curve, and factors that can affect supply. Explore supply elasticity and examples of elastic and inelastic products.

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Understanding Supply and the Law of Supply

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  1. SUPPLY CHAPTER 5

  2. WARM UP MARCH 9, 2017 Have you ever gone to a store to buy something, only to find out that the store had sold out its supply of items? What did you do?

  3. Definitions • Supply (Page 113) • Law of supply (Page 113) • Supply schedule (Page 114)

  4. Introduction Supply is the amount of output that producers will bring to the market at every price The law of supply states that the amounts of products offered for sale change depending on its price If prices are high, suppliers will offer more amounts for sale If prices are low, they will offer lesser amounts for sale

  5. Reflective Question #1 When will a toymaker offer more fashion dolls: if the company can charge $20 for each doll, or if it can charge $10 for each doll? Explain your answer.

  6. What is supply? Supply is represented in a supply schedule This lists the different amounts of a product that the manufacturer supplies at all prices that are possible Supply can also be represented as a supply curve- a graph showing the various amounts that a producer supplies at each and every price in the market The market supply curve shows the amount of the product offered at different prices by all the companies that sell the product

  7. The Supply Schedule

  8. Supply Curve

  9. Market Supply Curve

  10. Change in Quantity Supplied The quantity supplied is the amount of a product that producers offer for sale at any specific price The change in the amount of product offered for sale in response to a price change is called change in quantity supplied If the price goes up, producers offer more of the product for sale

  11. Change in Supply This is a change of the quantity that will be supplied at each and every price A change in quantity supplied is caused by a price change, but a price change, a change in supply (increase or decrease) is caused by other reasons.

  12. Inputs The material and labor needed to make a product If the cost of inputs drops, the supply of a product increases If the price of inputs increases, the supply decreases If management maker workers want to work harder, supply increases If workers are unhappy, supply decreases

  13. New Technology This decreases the cost of production, because new machinery makes products better and more quickly than old technology. This increases supply

  14. Taxes If firms are taxed, it costs more to make the product and supply decreases

  15. Subsidies A payment the government gives to a business to help the business If a firm receives a subsidy, the extra money helps increase its supply of products

  16. Expectations If producers expect a price to go up, they may decrease the supply for now If they expect a price slump, they increase the supply while the price is still high

  17. Government When the government makes businesses obey strict rules, the supply decreases because it become harder for firm to produce goods Fewer government rules means an increase in supply.

  18. Competition If more firms produce a product, the supply goes up If the number of firms decreases, the supply decreases too

  19. Reflective Question #2 Do you think the supply of handmade clothing in the market is larger or smaller than the supply of machine-made clothing. Explain your answer.

  20. Elasticity of Supply Supply elasticity is a measurement of the effect of price change on the amount of a product that the maker supplies A product has elastic supply if, when its selling price increases, its supply increases quickly by a large amount If the firm that makes a product can quickly increase its production, then the supply is likely to be elastic If the production takes a long time to adjust, the supply is inelastic

  21. Elastic Supply When a product has an elastic supply, the product has many alternatives. Users of the product will be able to go elsewhere or use a different brand if the one they like increases in price. Many luxury products, such as sports cars and organic food, are elastic. Users can go elsewhere for the products but often will not do so to sacrifice the luxury of the products. Examples of products that have elastic supplies are specifically branded items that have alternatives like Porsche vehicles E; products that have inelastic supplies are gasoline and salt.

  22. Inelastic Supply An inelastic product is one that cannot be replaced with a less expensive version. Gasoline is also a necessity for transportation. Despite the higher costs of gasoline, people will often continue to buy it. While different gasoline companies may offer lower prices, the price remains a steady average because companies know that people will continue to buy it.

  23. Closure Questions What have you learned today about how the changes in supply take place?

  24. SUPPLY ARTICLE ACTIVITY: FRIDAY MARCH 10, 2017 • What item is your news article about? • Why is there a great supply for this item? • How does the price of this item or service influence its supply? • How can the manufacturer or company of this item increase the supply for the item? • Do you think that the supply for this item will increase or decrease in the future?

  25. WARM UP MARCH 13, 2017 Have you ever worked at a summer job with other students? When you and the other students quit your job at the end of the summer, how was the business's output effected?

  26. Definitions • Theory of production(Page 122) • Law variable proportions (Page 122) • Production function(Page 122) • Marginal product (Page 124) • Stages of production (Page 125) • Diminishing returns (Page 125)

  27. Introduction Theory of production: How the factors of production (land, capital, labor, and entrepreneurship) are related to the amounts of goods and services produced Short run: short production period. Only labor changes Variable input: Kind of input that can be changed like supply of labor, supply of materials, and amount of money spent on new machinery Long run: Production period long enough to adjust the amount of all resources, including capital goods

  28. What is the law of variable proportions ? In the short run, the amount of a product that is produced will change if one kind of input changes while the other kinds of input stay the same Farmers use the law to determine how the crop yield will be affected if different amounts of fertilizer are added, but the farm machinery and the size of the field stay the same Difficult to study the effect of a single variable on total output

  29. Reflective Question #1 Imagine you have a sales job where you are evaluated on the number of sales transactions you make pers shift. What changes could you make in your labor that might improve the number of sales you generate?

  30. What is the Production Function? The relationship between changes in output and changes in a single input. One worker produces 7 units of output, two workers produce 20 units. The number of workers changes. Raw materials stay the same. Raw materials= wood, oil, iron, rubber More workers are added, production rises. If too many workers added, production decreases (workers get in each other’s way). Total product=Total amount of a product that is produced by a business. Marginal product= Extra output produced when one input (one more worker or machine) is added

  31. Reflective Question # 2 From your experience in working in groups for a class assignment, how many students make up a productive team? When is adding more group member likely to cause a “decline in total product”?

  32. What are the three stages in production? This is based on changes in marginal product as the number of workers increases Stage 1: Few workers, each new worker hired contributes to total output than workers before (2 workers=produce 10 units of production, three workers= 20 units). New workers needed so that machinery and other resources can be used as well. Increase in productivity called increasing returns Stage 2: Total production continues to grow with each worker. Grows by smaller and smaller amounts with each hired worker (4th worker=27 units, 3rd worker added 10 units, fourth added 7) Called diminishing returns Stage 3: Firm hired too many workers, get in one anothers way. Marginal product decreases each time a new worker is added. Total factory output decreases

  33. Reflective Question # 3 What skills and personality traits would help make an effective production manager?

  34. Closure Questions What have you learned today about the theory of production?

  35. WARM UP MARCH 14, 2017 You need to hire workers for your restaurant. You may add one worker at a time in a manner that will allow you to measure the added contribution of each worker. At what point will you stop hiring workers? Relate this to the three stages of production function (page 125).

  36. Definitions • Short run (Page 122) • Long run (Page 122) • Production function (Page 123) • Raw materials (Page 123)

  37. Closure Questions What do you understand about the law of variable proportions?

  38. WARM UP MARCH 15, 2017 How many hours do you spend studying every night? How many hours would you study if you were paid $1 per hour? $10 per hour? $20 per hour?

  39. Closure Questions According to the Law of supply, how does price affect the quantity offered for sale?

  40. WARM UP MARCH 16, 2017 Have you ever set up a lemonade stand? How much did it cost you to start? Did you make at least enough to cover the cost of sugar, lemons, paper cups, and other materials?

  41. Definitions • Fixed cost (Page 127) • Overhead (Page 128) • Variable cost (Page 128) • Total cost (Page 128) • Marginal cost (Page 129) • E-commerce (Page 129)

  42. What is measure of cost? Fixed cost= Cost a business pays if factory is unused and output is zero. This includes interest payments on debts, rents, and taxes. Includes depreciation (measurement of the decreasing value of capital goods, like machinery, which is used over and over again). Total fixed cost=overhead Costs can change as the amount of production changes= variable cost. Cost of electricity to run machines. If machines not running, no electricity cost. When machines used, business pays for electricity. Sum of fixed and variable cost= total cost Marginal cost= increase in variable cost from using additional factors of production

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