Download Economic Survey Mr. Rubin de Celis Chapter 5 section 3 page 118

Economic Survey
Mr. Rubin de Celis
Chapter 5 section 3 page 118
Key Terms
subsidy
excise tax
regulations
Factors that affect the Supply Curve to Shift
Input Costs


any change in input – fixed or variable costs will affect quantity supplied

a rise in cost will cause supply to fall at all price levels

the good is now more expensive

a fall in the cost of input will cause the quantity supplied to increase
Effect of rising Costs

a supplier sets output at the most profitable level where price is equal to marginal cost

marginal cost includes the cost of the inputs that go into the production of the good

rise in cost of raw material or labor will translate into a higher Marginal Cost

if cost of inputs become higher, Marginal Cost may become greater than the price

firm may no longer be profitable

If the firm has no control over the price then solution is cut production

lowering Marginal Cost until Marginal Cost equals the new price

supply falls at each price, and supply will shift to the left
Increasing Supply
price
Supply curve
Decreasing Supply
Price
New supply Curve
New supply Curve
output

Supply Curve
output
Technology

Advances in technology will cause Marginal cost to fall in many industries

robots replacing human labor

no longer carry a salary

no longer carry benefits

no longer have a time clock

computers have simplified tasks

technology lowers costs and increases supply at all prices
Government's Influence on supply

government role in affecting supplies of many goods

by raising or lowering the cost of producing goods

government can encourage or discourage an industry or entrepreneurs

Subsidies – direct means to control supply

government gives subsidies to the producers of goods

a subsidy is a government payment that supports a market or business

government pays producer a set subsidy for each unit of good produced

Reasons for subsidies

France and Farm subsidies

imported food cheaper to buy than to produce

government pays producer to maintain farms in case of a food shortage

protecting the auto industry from foreign competition

In the United States, the government subsidizes the following industries

miners, cattle ranchers, tobacco growers, rise producers

government lowers Marginal cost at all levels of output

subsidies allow the supply of a good to increase – Supply curve shifts to the right

Taxes

a government can reduce the supply of goods by placing an excise tax on the product

this is a tax on the production or sale of a good

an excise tax increase Marginal Cost per unit sold

excise taxes are used to discourage the consumption of goods that may be harmful

tobacco

alcohol

high pollutant gasoline

excise taxes are built into the price of the good

consumers may not realize or become indifferent with the added cost

like any increase in cost, the excise tax causes the supply curve to shift to the left

Regulations – an indirect means in controlling supply

government regulations often have the affect of raising cost

auto emission regulations of the 1970's

control auto pollution

install new technology that reduces pollution

use of lead free gasoline

lead is thought to leading cause of death

underdeveloped brain development

regulations increased the cost of the product

reduced supply of cars – supply curve shifted to the left
Supply in the global economy

US imports Carpets from India

increase of Indian carpet weaver income

decrease supply of carpets sold in the US

supply curve would shift to the left

US imports telephones from Japan


New technology innovations decrease cost of production

increasing supply of telephones in the US

shifting the supply curve to the Right
US imports oil from Russia

a new oil discovery would increase supply of oil in the US

this would shift supply curve to the right
Import restrictions

Import Quotas

government sets amount of supply of goods into the US

this would shift demand for the good to the left

shift would be smaller than a complete ban on the product
Other Influences on supply

Producers expectations of future prices

your expecting an increase in the price of soy beans

What would you do with the existing crop you just harvested?

Would you sell it right now?

Would you hold on to it until soy prices rise?

Most farmers would store the soy until the price rose

amount supplied in the short term would decrease

if seller expects the price to go up in the future, the seller will store the soy now in order to
sell in the future

On the other hand if the grower anticipates prices to fall, he will unload his supply at the
current price.

Expectations of higher prices will reduce supply now and increase supply later

Expectations of lower prices will have an opposite affect

Inflation

this is a condition of rising prices

inflation reduces the value of currency

value of good remains the same – provided that it can be stored somewhere

inflation can affect supply when producer decides to hold back a good for higher anticipated
prices. Shift to the left

Amount supplied will increase with an increase of suppliers
market supply will rise when the number of producers increase

the supply curve will shift to the right

if suppliers decide to stop producing a good, then the curve will shift to the left

Chapter 5.3 assessment
1
How does subsidy affect supply?
2
Why does the government impose excise taxes?
3
How can regulations affect a producer's output decision?
4
Decide whether each of these events would cause an increase or decrease in the supply of
American made backpacks:
a) the government raises the minimum wage of backpack workers to $40 an hour.
b) a new regulations requires firms to make backpacks out of expensive clear plastic.
c) an engineer invents a machine that can sew ten backpacks a minute, speeding up production.
5
Explain why a change that lowers the marginal revenue (price) changes the quantity produced
in the same direction as a change that raises the marginal cost of production.
Output
Fixed
cost
Variable
cost
Total
cost
Marginal
cost
1
$5
$10
15
15
2
$5
$27
32
17
3
$5
$55
60
28
4
$5
$91
96
36
5
$5
$145
150
52
Chapter 5 assessment
1
How does the marginal product of labor change as more people are hired? Look at the beanbag
table.
Labor – number of
workers
Output – beanbags per
hour Given
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
2
What categories of costs combine to create a firm's total cost?
4
What circumstances cause a firm to experience diminishing marginal returns?
5
How can the global economy affect the supply of a good in the United States?
6
Assume that a $1 per pound tax has been placed on fish. What effect will this have on the
supply curve for fish?
7
$5,000
$3,000
$4,000
$2,000
A local coffee shop has the following expenses:
rent
full time manager
part time workers
coffee beans, milk, cups
In July the owner anticipates earning $7,000. If she chose to close down the shop, she will no longer
have pay the costs above.
Question: Do you think the owner should close down the shop?
Number of
units
Fixed
costs
Variable
cost
Total
Cost
Margin
al cost
Margin
al
Revenue
0
$8,000
0
$8,000
0
0
1
8,000
6,000
14,000
6,000
7,000
1. Government intervention in a market that affects the production of a good is




regulation.
an excise tax.
quantity supplied.
an input cost.
2. Why would a farmer store his or her soybeans for future sale instead of selling them right after
harvest?




Inflation is running at 25 percent.
The government imposes an excise tax effective next year.
A new technology decreases the chance of rot.
The government lifts restrictions on the importation of soy beans.
3. If a firm's product is perishable, where is the firm usually located?




in a city
near a river
near its consumers
location doesn't matter
4. New advances in technology usually




cause input costs to drop.
increase supply at all price levels.
cause the supply curve to shift to the right.
all of the above.
5. A tax on the production or sale of a good is called




income tax.
a revenue tax.
an excise tax.
a subsidy.
6. What is a negative effect of the U.S. farm subsidies that pay farmers to take land out of cultivation?




Less efficient farms must shut down because the subsidized farms are more efficient.
Farmers use more pesticides on lands they do cultivate to make up for lost production.
Farmers are paid less for their product.
all of the above
7. Which of the following is a way entrepreneurs influence supply?




subsidies
technology
regulation
taxes
8. A government payment that supports a business or market is




quantity supplied.
a regulation.
an excise tax.
a subsidy.
9. Which of the following will always cause a supply curve to shift to the left?




advances in technology
future expectations of falling prices
excise taxes
fewer inputs
10. What happens to supply when input costs go up?




It decreases because the good becomes more expensive to produce.
It increases because the good becomes cheaper to produce.
It increases because the good becomes more expensive to produce.
It decreases because consumers find a substitute product.
a) marginal costs
b) supply schedule
c) marginal revenue
d) regulations
e) elasticity of supply
f) excise tax
g) law of supply
I) variable cost
j) subsidy
k) fixed cost
__k___ 1 an expense that costs the same whether or not a firm is producing a good or service.
__c___ 2 the income that the supplier receives from selling one more unit.
__f___ 3 a tax on the sale or manufacture of a good.
__e___ 4 a measure of how suppliers will respond to a change in price.
__j___ 5 a government payment to support a business or market.
__g___ 6 the quantity of a good supplied rises as the price price rises.
__a___ 7 the additional cost of producing one more unit of output.