Download Ch 5-1 Note Sheet

Objectives:
1. Explain the law of supply.
2. Interpret a supply graph using a supply schedule.
3. Explain the relationship between elasticity of supply and time.
-----------------------------------------------------------------------------------------------------------------------------As a owner of a business, what would you do if you discovered that your customers were willing to pay
twice as much for your product?
-Most entrepreneurs would try to __________________________ product in order to take
advantage of the higher prices.
-Supply – the amount of _____________________________.
-______________________________ – the quantity of a product supplied varies directly with \
price {the higher the price, the larger the quantity that is produced}.
-The Law of Supply means that a producer will ________________________________ as the
price ________________, other factors held constant.
-Economists use the term ________________________________ to describe how much of a
good is offered for sale at a specific price.
-Much like Quantity Demanded has to do with the amount consumers would demand, Quantity
Supplied has to do with the amount producers will put ___________________ at that
price level.
Supply Schedule
-It shows the relationship between ______________ and _____________________________
-It compares two factors that can ____________________
-Law of Supply develops from the choices of both ______________________________ and
__________________________________. As the price of a good rises, existing firms
will produce more in order to earn ______________________________. At the same
time, _________________________________the market to earn a profit for themselves.
-If the price of a good falls….
>some firms will ___________________________.
>some firms will _________________ or _______________ the marketplace.
>These two movements just described combine to create a _______________________.
-If a firm is already earning a profit by selling a good, then an increase in the price – it will
_______________________ the firm’s profit.
-This promise of higher revenues for each sale _________________ the firm to produce more.
-Profits also appeal to people who may decide to _________________ marketplace. These
companies will come in and compete with the already _________________________ and
try to get their share of the _________________________.
Individual Supply Schedule
-Reports the amount that would be supplied by __________________________________.
Market Supply Schedule
-Reports the amount that would be supplied by ________________________ in the market.
Supply Graph
-4 Parts – _________ on V-axis, ____________________________on H-axis, ___________, and
Supply Curve labeled with an “___”
Market Period
– a period of time when all production has _______________________ so the firm has a fixed
quantity it is trying to sell. It is right now. Producers _____________________ anything.
-A set # of goods, all __________________________ has taken place.
- Supply Curve is a __________________________!
Short Run
– a period of time when at least _______________ of production is fixed, but the firm can vary
output by _______________or ________________________ other factors of production.
-Short enough period of time that a firm can’t do something like build a _________________,
train new ___________________, etc.
-It is long enough to change the ________________________________________________
(adding new materials or buying more equipment)
Short Run Supply
-It is ______________________________ because as costs rise as more goods are produced.
-The company has to raise the price of the good to cover those ________________________.
Long Run
– a period of time when ___________________________ of production are fixed.
-Enough time to change all factors of production. {________, _________, & _______________}
-A period of time that allows a company to change _____ of its factors of production – they can
____________________, build a new factory, hire & train new employees in that factory,
and _________________________________, machines, and tools.
-There are __________________ Supply Curves in the Long Run.
-2 different __________________________ of increasing production
-_______ – represents a company who, as costs rise, must ____________________ to cover this
cost. It looks like the short run supply curve – this company has not figured out a way to
_____________________________________ as supply increases.
-S1 example would be _________________________ are causing the long run cost of gasoline to
increase because firms are having to drill deeper and in more remote areas to find oil.
-_____ – slopes _______________ because this company has increasing _______________,
which lowers the _____________ as they produce more.
-This happens because as the company makes more of a good they figure out ways to become
____________________________ and to ________________ in the production process.
-S2 example would be the _________________________________ of
_____________________. Its supply curve is downward sloping because as the volume
of PCs has expanded, computer firms have been able to adopt more _________________
and that will lower the _____________________________________.
Specialization increases the efficiency of the ___________________________.
-For our purposes in this class, we will focus our attention on the
___________________________________________________. We will deal with
_______________ sloping supply curves, that assumes costs _________________ as
output increases.
Elasticity of Supply
+This is a measure of the way _________________________ to a change in price.
{much like elasticity of demand}
+Elasticity tells how firms will respond to changes in the ______________________.
+3 Types:
1) _______________________
2) _______________________
3) _______________________
Elastic Supply – when supply is _______________________________ to price change.
Inelastic Supply – when supply is ________________________________ to price change.
-{Much like elasticity of demand}
Unit Elastic – when a percentage change in price is perfectly matched by an ______________________
in QS
What determines whether the supply of a good will be elastic or inelastic?
_________________
– In the short run, a firm cannot easily change its output level, so supply is ________________.
-In the long run, firms are more flexible, so supply is more _____________________.