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Ch 5.1
Understanding Supply
Supply
•Supply is the amount of goods available
•The _______________ is the higher the price, the larger the quantity produced.
Thus the lower the
price, the quantity supplied falls.
•The search for ___________ drives the supplier’s decision.
Supply Schedule
•Shows the relationship between ____________________ supplied for a specific good.
•Like a demand schedule, a supply schedule lists supply for a very specific set of conditions. Again,
only looking at ________________. In the case of Pizza…other factors such as the cost of tomato
sauce, __________ and rent are assumed to remain ________________.
•A Supply curve is the same as demand ____________ the horizontal axis now measures the quantity of
the good _____________ not the quantity demanded.
Elasticity & Supply
•Elasticity of supply measures the way suppliers respond to a change in price
•It is the ______________________________.
•What determines whether the supply of a good will be elastic or inelastic?
The key factor is time.
TIME
•Time is the key factor in determining whether the supply of a good will be elastic or inelastic
•In the _____________, firms are more ________________, so supply is more elastic
•In the __________________, companies are ________________.
–Ex. Orange grove … takes years to grow(inelastic)
–Haircut – need more, hire workers, if less workers go elsewhere(elastic)
Elastic or Inelastic?
•Price of apples increase _______________________
•Price of an oil change _________________________
•Price of dry cleaning services __________________
•Price of football tickets _______________________
•Hotel rooms _______________________________
•Taxi rides ________________________________
•Photographs ________________________________
•Taxi rides ___________________________________
Ch 5.2
Cost of Production
Labor and Output
•Marginal Product of Labor
–Change in output from hiring one more worker (look at Figure 5.6 p. 109)
–Specialization increases output per worker, so the second and third worker add more to output than the
first…=
•INCREASING MARGINAL RETURNS BUT get
•DIMINISHING MARGINAL RETURN with the 4th-7th worker hired and
•NEGATIVE MARGINAL RETURN with the 8th worker
•____________ marginal returns – specialization ________________ per worker
•____________ marginal returns – adding more workers increases total output, but at a _________ rate.
•____________ Marginal Returns – is an actual ___________ in output.
Production Costs (p. 111)
•Fixed Cost
–Does _____________ no matter how much produced. (ex. Rent, taxes on a factory)
•Variable Cost
–Rise or fall depending on __________________.
( ex. Electricity, labor)
•Total Cost
–Fixed plus variable = total
•Marginal Cost
–The additional cost of producing ______________________.
Setting Output
•The best level of output is to find the output level where marginal revenue is equal to marginal cost.
•Ex. IPHONE
To Shutdown or to not shutdown
•If shuts down – still have to pay ___________________.
•Sometimes keeping a money-losing factory open is the better choice.
•Amazon.com (next class) v. Circuit City
Ch 5.3
Changes in Supply
INPUT
•Any change in the _________of an input used to produce a good – such as raw materials, machinery, or
labor – will affect supply.
•A rise of ___________ causes a fall in ____________ at all price levels.
•A fall in input will cause an _____________ in supply at all price levels.
Technology
•_______________ costs and increases supply at all price levels
–This shifts the supply curve to the _______________.
Government & Supply
•Subsidies
–Government payment that supports a ________________________. Ex. Farms
•Taxes
–Excise tax is a tax on the __________________ of a good. Who does this hurt? lower income
–Ex: Alcohol, cigarettes
•Regulation
–Government intervention in a market that affects the price, quantity, or quality of a good.
–This can _________________ supply indirectly and often increases price.
Other influences
•Future price expectations of prices.
–If the seller expects the price of a good to rise in the ____________, the seller will _________the
goods now in order to ___________ in the future. On the other hand, if the price of the good is expected
to _________ in the near future, sellers will earn more money by placing goods on the market
_________________ before the price falls. Expectations of higher prices will ______________ now
and increase supply later, and expectations of lower prices will have the opposite effect.
•Number of suppliers producing a good
–If more suppliers enter a market to produce a certain good, the market supply of the good will
_______, and the supply curve will shift to the ____________. On the other hand, if suppliers stop
producing the good and leave the market the swill decline.