SUPPLY Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho Economics: concepts and choices, 2011. Holt McDougal

SUPPLY

Dr. T. D. Mitchell

Bonneville High School

Idaho Falls, Idaho

Economics: concepts and choices, 2011. Holt McDougal


SUPPLY

• Concept Review• Demand is the willingness to buy a good or service and the

ability to pay for it.

• Chapter 5 Key Concept• Supply is the willingness and ability of producers to offer goods

and services for sale.

WHAT IS SUPPLY?

Objectives for this section:• Define supply and outline what the law of supply says.• Explain how to create and interpret supply schedules.• Explain how to create and interpret supply curves.



THE LAW OF SUPPLY

• Supply• Law of Supply• Price and Supply


SUPPLY SCHEDULES

• Individual supply schedules• Market supply schedules• Supply curve

WHAT ARE THE COSTS OF PRODUCTION?

Objectives for this section:• Analyze how businesses calculate the right number of

workers to hire.• Determine how businesses calculate production costs.• Explain how businesses use those calculations to determine

the most profitable output.



LABOR AFFECTS PRODUCTION

• Marginal Product – the change in total output brought about by adding one more worker.

• Specialization – having a worker focus on a particular aspect of production.

• Marginal Product Schedule – shows the relationship between labor and marginal product. One or two workers produce very little.

• Increasing Returns – occur when hiring new workers causes marginal product to increase.


MARGINAL PRODUCT SCHEDULE

Number of workers

Total Product Marginal Product

0 0 0

1 3 3

2 7 4

3 12 5

4 19 7

5 29 10

6 42 13

7 53 11

8 61 8

9 66 5

10 67 1

11 65 -2


LABOR AFFECTS PRODUCTION

• Increasing Returns – occur when hiring new workers causes marginal product to increase.

• Diminishing Returns – occur when hiring new workers causes marginal product to decrease.


PRODUCTION COSTS

Management Machinery Mortgage on Factory

Examples of Fixed Costs


PRODUCTION COSTS

Workers Computer Cases Circuits

Examples of Variable Costs


PRODUCTION COSTS SCHEDULE

# of Workers

Total Product Fixed Costs Variable

Costs Total Cost Marginal Cost

1 0 40 0 40 --

2 3 40 30 70 10

3 7 40 62 102 8

4 12 40 97 137 7

5 19 40 132 172 5

6 29 40 172 212 4

7 42 40 211 251 3

8 53 40 277 317 6

9 61 40 373 413 12

10 66 40 473 513 20

11 67 40 503 543 30


EARNING THE HIGHEST PROFIT

• Marginal Revenue – is the money made from the sale of each additional unit of output.

• Total Revenue – is a company’s income from selling it’s products.

• Profit-Maximizing Output – is the level of production at which a business realizes the greatest amount of profit.

WHAT FACTORS AFFECT SUPPLY?

Objectives for this section:• Explain the difference between change in quantity supplied

and change in supply.• Understand how to determine a change in supply.• Identify the factors that can cause a change in supply.



CHANGES IN QUANTITY SUPPLIED

A change in the price of bicycles…

…causes a change in the quantity supplied


CHANGES IN SUPPLY

Input Costs

Labor Productivity

Technology

Government Action

Producer Expectations

Number of Producers


THE SUPPLY CURVEP

Q

S

A change in quantity supplied

S1

S2

A positive change in positive quantity

supplied

A negative change in price and quantity

supplied

P

Q2 Q Q1


WHAT IS ELASTICITY SUPPLY?


WHAT AFFECTS ELASTICITY SUPPLY?

• There are far fewer factors that affect elasticity of supply than elasticity of demand.• Changing production to respond to a change in price.

• Given enough time, the elasticity of supply increases for most goods and services.

• Supply will be more elastic over a year or several years than it will be if the time to respond is a day, week, or a month.

• Some industries, take a great deal of time to shift the resources of production to respond to the price changes.


END OF NOTES!

Documents

SUPPLY Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho Economics: concepts and choices, 2011. Holt McDougal