SupplyMr. Southward

What is Supply?The amount of a product that

would be offered for sale at all possible prices that could prevail in the market;

Do not forget, this is a behavior; not a number.

Supply is showing what would happen at various prices;

The Law of Supply

Because producers are out to make the greatest profit possible, it makes sense for them to see higher prices as a good thing.

Two different ways to view Supply Supply Schedule a listing of the

various quantities of a particular product supplied at all possible prices in the market

Supply Curve the graphical representation of the supply schedule;

The Market Supply CurveRefer to page 95, read about Individual and Market Supply Curves and explain the difference between the two.

Quantity Supplied vs. SupplyThink back to what we talked about with demand, grab a partner and read about the difference between a change in quantity supplied and a change in supply.

Factors Causing a change in Supply (pages 104-108)Cost of InputsTechnologySubsidies and supplyExcise TaxesRole of Government Rules and

RegulationsChanges in the Global

Economy Expectations Changes in Number of

Competitors

Elasticity of Supply measures how firms will respond to changes in the price of a good or service

>1= supply is very sensitive to changes in price and is elastic

<1 = inelasticEqual % change in price = to 1= unitary

Costs of Production How many workers to hire?- read the example on page 97…and…create

your own scenario with a partner…*notebook grade*

Marginal Product of Labor – change in output from hiring one more worker (pg. 98)

Increasing Marginal Returns – specialization – increases output

Diminishing Marginal Returns – specialization ends – adding more workers increases total output…but…at a decreasing rate (pg. 98) – limited capital

Negative Marginal Returns – workers get in each other’s way – disruption of production – overall output decreases

Production CostsFixed Costs – does not change – rent…property taxes…salaries

Variable Costs – rise or fall depending on the Q produced – reduce weekly hours for workers…cost of labor = number of workers…electricity/heating

Total Cost = fixed + variable

Marginal Cost – the additional cost of producing one more unit – chart on pg. 101

Setting OutputMarginal Revenue and Marginal Cost

Responding to Price ChangesThe Shutdown Decision

*Explain concept and terms in your n/b…yes…it is a n/b grade*