Download Quantity supplied

HI
FRIDAY
HAPPY MONDAY
SUPPLY
• Supply is the amount of goods
available
• Quantity supplied – how much of a
good is offered for sale at a
specific price
Law of Supply
• Law of supply
– the higher the
price, the larger the quantity produced
– As the price of a good rises, existing firms
will produce more in order to earn additional
revenue.
– At the same time, new firms will have an
incentive to enter the market to earn a
profit for themselves
• 2 movements combine to
create the law of supply
– 1. individual firms change their level of
production (more or less)
– 2. firms entering or exiting the market
Law of Supply
PRICE
As price
increases…
SUPPLY
PRICE
SUPPLY
Quantity
supplied
increases
As price
falls…
Quantity
supplied
falls
Higher prices lead to
more production!!!
Supply Schedule
• Shows the relationship
between price and
quantity supplied for a
specific good
• Lists supply for a very
specific set of
conditions (all other
factors remain
constant except price)
• Rise or fall in price will
change the quantity
supplied
Supply Graph
• Supply
curve – a
graph of the
supply schedule
• Higher price =
Higher output
Role of Existing and New Firms
• Existing:
If a firm is
already earning a profit by
selling a good, then an
increase in the price (ceteris
paribus) will increase the
firm’s profits. (firms want to
produce & sell more if they
will earn more)
• New:
Rising prices draw
new firms into a market and
add to the quantity supplied
of the good.
Elasticity of Supply
• The way suppliers respond to price
changes
• What determines whether the supply
of a good will be elastic or inelastic?
–TIME!!!
• In the short run, a firm cannot easily
change its output level, so supply is
inelastic
• In the long run, firms are more flexible, so
supply in more elastic.
Combining Supply & Demand
THE STANDARD:
• SSEMI2 The student will explain how the Law of Demand, the
Law of Supply, prices, and profits work to determine production
and distribution in a market economy.
• a. Define the Law of Supply and the Law of Demand.
• b. Describe the role of buyers and sellers in determining market clearing price.
• c. Illustrate on a graph how supply and demand determine equilibrium price
and quantity.
• d. Explain how prices serve as incentives in a market economy.
• SSEMI3 The student will explain how markets, prices, and
competition influence economic behavior.
• a. Identify and illustrate on a graph factors that cause changes in market
supply and demand.
• b. Explain and illustrate on a graph how price floors create surpluses and price
ceilings create shortages.
Happy Tuesday
Supply & Demand Schedule
Supply and Demand Together at Last
• Shows the #
that
Price of
consumers will Widgets
buy at each
price and the
$1.00
# producers
are willing to $2.00
supply at each
$3.00
price
$4.00
# of
Widgets
demanded
for sale
# of
Widgets
100
90
70
40
10
40
70
140
• The point of balance
between the price and
quantity
• Where the market for a
good is stable
• Market equilibrium =
where quantity supplied
equals quantity
demanded
• Where the supply curve
and the demand curve
intersect
Equilibrium
Disequilibrium
• If the market price or
quantity supplied is
anywhere but at the
equilibrium
• Occurs when quantity
supplied is not equal to
quantity demanded
• Outcomes of
disequilibrium:
– Excess demand
(shortage)
– Excess supply
(surplus)
Market Price & Equilibrium
• Market forces will
push the market
toward the
equilibrium
• Sellers don’t want to
waste their resources
on excess supply and
when there is excess
demand , profit
seeking sellers realize
they can raise prices to
increase profits
Excess Demand
• When quantity demanded is
more than quantity supplied
• Occurs when the actual price
is below the equilibrium
price
• A low price encourages
buyers but discourages
sellers
• Suppliers will keep raising
prices as long as there is an
excess demand, and the
quantity demanded exceeds
quantity supplied
Excess
Supply
• If the price is too
high
• When quantity
supplied exceeds
quantity
demanded
• High prices
encourage sellers
but not buyers
Government Intervention
• The government controls prices in 2 ways:
– Price ceilings
– Price floors
Price Ceiling
• A maximum price, set by the law,
that sellers can charge for a good
or service
• Government imposes price
ceilings on “essential” goods
• EX: Rent control – government
sets rent below the
equilibrium price
– Increases quantity demanded
but decreases quantity supplied
– Landlords have difficulty
earning profits from low rents
– New apartments wont be built
and suppliers will leave the
market causing excess demand
(shortage)
Price Floor
• Minimum price set by the
government that must be
paid for a good or service
• Imposed when the
government wants sellers
to receive some minimum
reward for their efforts
• The government might
provide financial
assistance to producers
instead of using price
floors (like emergency
aid to farmers)
• Example of a price
floor
• Sets a minimum
price an employer
can pay a worker
for an hour of labor
• This causes a
labor surplus –
more people
looking for work
than the employees
want to hire
Minimum Wage
IT’S THURSDAY
Welcome to Tuesday!
ECONOMIC$ $TANDARD:
• SSEMI4 The student will explain the
organization and role of business and
analyze the four types of market structures
in the U.S. economy.
• a. Compare and contrast three forms of
business organization—sole proprietorship,
partnership, and corporation.
• b. Explain the role of profit as an incentive
for entrepreneurs.
• c. Identify the basic characteristics of
monopoly, oligopoly, monopolistic
competition, and pure competition.
Marginal Product of Labor
• The change in output from hiring one
more worker
• Measures the change in output at the
margin, where the last worker has been
hired or fired
3 workers can make 5 pizzas per hour
Adding another worker
increasing production
to 7 pizzas per hour.
What is the
marginal
product of
labor for the
4th worker?
Increasing Marginal Returns
• Specialization
increases output per
worker
• If each person can
specialize in a task,
they won’t waste time
switching from tasks,
which will allow them
to become more
skillful at their
assigned task
• Therefore, each
worker can produce
more
Diminishing Marginal Returns
• When adding more workers increases total
output, but at a decreasing rate
• Producing less and less output from each
additional unit of labor added to the mix
• This is a result of limited capital
# of workers
Beanbags per hour
Marginal product of labor
0
0
-
1
4
4
2
10
6
3
17
7
4
23
6
5
28
5
6
31
3
7
32
1
8
31
-1
Production Costs
• Fixed Cost – does not
change no matter how
much is produced; ex:
rent, machinery, etc
• Variable Cost –
changes with
production (direct
relationship); ex: raw
materials, some labor
• Total Cost – Fixed Cost
+ Variable Cost
Marginal Cost –
the additional
cost of
producing one
more unit
Marginal
revenue (price) =
how much you
would make off
of selling one
more unit of a
good
How to Find the Best Level of Output
• Firm’s basic goal:
maximize profit
• Profit = total
revenue – total cost
• To have the biggest
profit you would want a
big difference b/t total
revenue & total cost
• OR when
Assessment
Explain whether each of these expenses of a
textile mill is a fixed cost or a variable cost,
and why.
1.Repairs to a leaking roof
2.Cotton
3.Food for the mill’s cafeteria
4.Night security guard
5.Electricity
Types of Business
Organizations
The Purpose of a Business Organization
• A business is formed
to carry on
commercial
enterprises and earn
a profit.
• The most common
type of business is a
sole
proprietorship.
• A sole
proprietorship is a
business that is
owned and
managed by a single
individual.
Sole Proprietorships
• This type of business
makes up 75% of all
businesses in the U.S.
• They account for 6%
of all sales.
• Examples- Local
bakery, bikerepair shop, hair
salon, etc.
Advantages of Sole Proprietorships
• Easy to start
a. Must obtain a business license
b. Must find a place to conduct business.
c. Must register a name
• Few govt. regulations
ex. Health codes, zoning laws, etc.
• Owner receives all
profits
• Owner has full control of
all decisions
• Easily makes changes
Disadvantages of Sole Proprietorships
• Unlimited Personal Liabilityowner legally responsible for
all debts.
• Limited Access to ResourcesBank unwilling to lend money.
All funds come from owner.
• Lack of Permanence- Sole
proprietorships close when an
owner dies, retires, loses
interest, etc.
PARTNERSHIPS
Advantages
Disadvantages
Easy to open and close
Unlimited liability
Few regulations
Potential for conflict
Access to resources
Limited life
Joint decision making
specialization
TYPES OF PARTNERSHIPS
General
Limited
• Most common
• Limited owners
• All partners are
only invest money
limited
• Parents share
responsibility
• Every partner is
responsible for
debts, losses
• Not responsible
for day to day
operations
• Only can lose
money that had
• Tradeoff= rewards
been invested
Limited liability
• Not responsible
for others’
mistakes
• Only certain
businesses can be
one: medical
practices, legal
offices and
accounting firms
Corporations
• A corporation is a legal entity that is owned
by stockholders
• Stock is a certificate of ownership in the
corporation.
• Corporations account
for 90% of all sales in
the United States.
Types of Corporations
Publicly Held Company
• Stock is bought and sold on
the open market (stock
exchange)
• Anyone with money can
buy shares of these
companies
• Example- The Home Depot
• 1.67 Billion shares of HD
available
Types of Corporations
Closely Held Corporation
• Also known as privately
held companies
• Rarely trade stock, usually
held by one family.
• Example- Publix
Supermarkets
• Stock is only available to
Publix employees.
Advantages of Incorporation
• Limited liability for owners
• Transferable ownership
• Ability to attract capital
- Sell bonds
• Long life
Ford incorporated in
1903
Disadvantages
• Expensive and difficult
to start
• Double taxation
• Potential loss of
control for founder
• Many legal
requirements and
regulations
WRAPPING IT UP…
• Page 136-”The NBA
Goes International”
–Questions 1 & 2
• Page 137-”Reviewing
Key Concepts”
–Questions 1-5
(Write the
questions)