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Drill 9/17
Determine if the following products are elastic
or inelastic:
1. A goods changes its price from $4.50 to
$5.85 and the demand for the good goes
down 13%.
2. A goods price goes down 26% and the
amount of the good demanded goes from 32
to 47.
3. Consumers demand for a product goes
from 58 units bought to 73 units bought
when the store lowered the price from $186
to $150.
Drill Answer
1. A goods changes its price from $4.50 to
$5.85 and the demand for the good goes
down 13%.
Percent change in price
$5.85 - $4.50 = $1.35
$1.35 ÷ $4.50 =.3
.3 x 100 = 30
Calculating elasticity
13 ÷ 30 = .43
The good is inelastic.
Drill Answer
2. A goods price goes down 26% and
the amount of the good demanded
goes from 32 to 47.
Percent change in demand
47 - 32 = 15
15 ÷ 32 = .47
.47 x 100 = 47
Calculating elasticity
47 ÷ 26 = 1.807
The good is elastic.
Drill Answer
3. Consumers demand for a product goes
from 58 units bought to 73 units bought
when the store lowered the price from $186
to $150.
Percent change
in price
$186 - $150 = $36
36 ÷ 186 = .194
.196 x 100 = 19.6
Percent change
in demand
73 – 58 = 15
15 ÷ 58 = .258
.258 x 100 = 25.8
Calculating elasticity
25.8 ÷ 19.6 = 1.32
The good is elastic.
1. What is a supply schedule?
2. What is the law of supply?
3.What causes supply to change?
The Law of Supply
The Law of Supply = the higher the
price, the larger quantity produced and
the lower the price, the smaller quantity
produced


Higher Production – existing firms produce
more to gain a greater profit
Market entry – new firms will enter the
market because of the greater profitability
of the good
Supply Schedule
Supply schedule = a table that lists the
quantity of a good that a producer will
supply at each price in the market

Market supply schedule = shows the
quantities supplied by all producers in the
market
Supply Schedule
Price
Quantity Supplied
$20
4
$40
10
$60
12
$80
15
$100
20
Supply Curve
PRICE
•
$100
•
$80
•
$60
•
$40
$20
0
S1
•
Supply curves always
slopes upwards to
the right (direct
relationship)
QUANTITY
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Costs of Production
Labor and Output
Labor costs money so each worker must
be worth the money that is paid


Producers measure the marginal product of
labor
The change in output from hiring one or
more workers
Drill 9/18
1. What is the law of supply?
2. What type of relationship is the law
of supply?
3. What is a supply schedule?
Marginal Product of Labor
Worker 1
Output 4 beanbags per hour
MPL = 4
Worker 2
Output 10 beanbags per hour
MPL = 6
Worker 3
Output 17 beanbags per hour
MPL = 7
Increasing Marginal returns – A level of production in which the
marginal product of labor increases as the number of workers
increases.
1) The Law of Supply = the higher the price,
the larger quantity produced and the lower
the price, the smaller quantity produced
2) Direct Relationship
3) Supply schedule = a table that lists the
quantity of a good that a producer will supply
at each price in the market
Marginal Product of Labor
Worker 1
Output 4 beanbags per hour
MPL = 4
Worker 2
Output 10 beanbags per hour
MPL = 6
Worker 3
Output 17 beanbags per hour
MPL = 7
Worker 4
Output 23 beanbags per hour
MPL = 6
Worker 5
Output 28 beanbags per hour
MPL = 5
Worker 6
Output 31 beanbags per hour
MPL = 3
Diminishing Marginal Returns – A level of production in which the
marginal product of labor decreases as the number of workers
increase.
Marginal Product of Labor
Worker 1
Output 4 beanbags per hour
MPL = 4
Worker 2
Output 10 beanbags per hour
MPL = 6
Worker 3
Output 17 beanbags per hour
MPL = 7
Worker 4
Output 23 beanbags per hour
MPL = 6
Worker 5
Output 28 beanbags per hour
MPL = 5
Worker 6
Output 31 beanbags per hour
MPL = 3
Worker 7
Output 30 beanbags per hour
MPL = -1
Marginal Product of Labor
NEGATIVE
MARGINAL
RETURN
Production Costs
Fixed Costs

A cost that does not change, no matter how much
of a good is produced
Variable Cost

A cost that rises or falls depending on how much
of a product is produced
Total costs = fixed costs + variable costs
Marginal cost

The cost of producing one more unit of a good
Changes in Supply
Input Costs
A rise in the cost of the factors of production
will result in a rise in costs as a whole for the
firm so they will cut production

Shift to the left
Advances in technology can lower production
costs causing an increase in production

Shift to the right
Setting Output
Producers look for the optimum amount
of output to maximize their profit

Not necessarily the most output
The optimum output is found when
marginal costs equal the market price.
Government’s Influence on
Supply
Subsidies = government payment that
supports a business or market
Excise taxes = a tax on the production
of a good for each unit
Regulation = government intervention
in a market that affects price, quantity,
or quality of a good
Other Factors
Supply in the global economy
Future expectations of prices
Number of Suppliers
What happens when you are producing
to a point where your marginal costs
equal the marginal revenue (market
price) but the factory is still losing
money?


SHUT DOWN
If the total revenue is greater than the cost
of keeping it open (variable costs) do not
shut down
Understanding Supply
Supply = the amount of goods
available
Drill #
1. What is the marginal product of
labor?
2. What are decreasing marginal
returns?
3. What is a marginal cost?