Download Economics: Chapter 4.1: Nature of Supply

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.