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Economics Supply Supply: Quantity of goods/services that producers are willing/able to make at various prices Supply Quantity Supply: Amount of a good/service that a producer is willing/able to make at a specific price Law of Supply States: that producers supply more goods and services when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices. Supply What causes producers to vary their supply of goods/services? 1. Profit Motive (profit) How much they make after all their bills and cost of production have been paid Profit 2. Profit Competitors If a company’s competitor makes a profit off of a product, they too will supply a similar product Illustrating Supply Supply schedule: table Supply curve: graph Elasticity of Supply Degree to which price change affects quantity supplied Types: 1. Elastic Supply: When small change in price has a huge impact on supply Elasticity of Supply Types of products: Made quickly Cheap in price Takes only a few products to make Sports team merchandise after a big victory Inelastic Supply Inelastic Supply When price change has little impact on supply Inelastic Supply Types of products Lengthily to produce Expensive to produce Resources are hard to find Ex. Precious metals, land Changes in Supply Supply shifts of supply – nonprice factors that can shift the entire supply curve of a product Instead of simply changing the quantity supplied along the original supply curve. Determinants Determinants Price of resources Government tools Technology Competition Prices of related goods Producer expectations Prices of Resource Used in the production of a good or service. Price of a resource falls, production cost falls Government tools Taxes Materials Property Higher the tax higher the cost of production Government tools Subsidies Payments to private business by the government. Regulations Rules on how companies conduct business Pollution laws Technology Can lower the cost of production Competition Tends to increase supply, while a lack of competition tends to decrease supply Prices of Related Goods The supply for one good often is connected to the supply for its related good. Wheat and corn Producer expectations Decisions based on their expected future income. Total Output How much of a product a company can produce in a specific time period To maximize productivity businesses need to know their marginal product (output) Marginal Product Marginal Product (output) Change of output generated by adding one more unit of input Theory of the Law of Diminishing Return As more of a variable resource is added to a given amount of fixed resources, marginal product eventually declines and could be negative. Production Cost . Fixed Cost: Cost that seldom change for the producer, even as production increases. Ex: rent, interest, taxes, etc. Variable Cost: Variable Cost: Cost that can change as production increases Ex: materials, paid wages