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Economics: Chapter 4.1: Nature of Supply Supply is the amount of goods that producers are willing to offer at various prices during given time period. Quantity supplied is the same except at a particular price. Law of Supply Price is key factor. Law of supply states, “producers supply more product when prices are high and less when its low.” This is based on their pursuit of profits. Profit Motive Profit is the amount of money that is left after everything is paid- when revenues are greater than cost of production. Profit motive governs how companies make decisions and helps direct use of resources in entire market. Supply Schedules Displays relationship between price and supply Supply Curve Illustrates the supply schedule Elastic Supply Small change in price creates major change in supply. Products can be made quickly, inexpensively, and use few resources. (Sports Memorabilia) Inelastic Supply Change in price has little impact on supply. Products require a great deal of time, money, and resources to produce. (Gold) Economics: Chapter 4.2: Changes in Supply Supply curves demonstrate a product’s market at a specific period of time. Supply Shifts Determinants of supply- non-factors that move the curve. 1. Prices of Resources: change in prices of resources or cost of production goes up, supply goes down and vice versa. 2. Government Tools: Taxes, Subsidies, and Regulation: 3. 4. 5. 6. a. Tax: required payment of money to government. Taxes add to production costs b. Subsidies: payments to private businesses by government. Subsidies and taxes have opposite effect. Subsidies are paid for by tax-payers. c. Regulation: rules on how companies conduct business. Loose government regulation increases supply, strict decreases supply. Technology: new technology usually makes production more efficient and less expensive. This increases supply. Sometimes new technology adds to production cost at first, then becomes inexpensive. Competition: tends to increase supply. Lack of decreases supply. Prices of Related Goods: a change in product’s price can affect the supply for that product’s related goods. Producer Expectations: based on business’ expected future income- the prices they can charge for their product. Economics: Chapter 4.3: Making Production Decisions Amount of goods produced is influenced by the laws of supply and demand, elasticity of demand and supply, shifts in the demand and supply curves and finally productivity and cost of production. Productivity: efficiency of resources being used in production. Decisions are based on total product and marginal product. Total product: all the product a company makes. Marginal product: change in output of a product by adding one more unit of input. Law of Diminishing Returns Vary a level of input to see the effect it has on total and marginal product. 3 stages of production can be predicted by this law: negative marginal returns, increasing marginal returns, and diminishing marginal returns. Cost of Production These costs directly affect the amount of profit their business makes. Divided into 4 categories: fixed, variable, total, and marginal. Fixed: Do not change (rent, interest, insurance, salaries) Variable: change (materials, wages) Total: sum of fixed and variable Marginal: additional cost of adding one more unit of output.