Transcript
Chapter 5SUPPLY
http://www.youtube.com/watch?v=R6ojYtKazgQ
SupplySupply – the amount of goods available
Law of Supply – the higher the price, the larger the quantity produced
Quantity Supplied – how much of a good is offered for sale at a specific price
http://www.youtube.com/watch?v=tXt_3H3e2bg&list=PLD78A4CA3338CFA7E&index=9&
feature=plcp
Supply Schedule
Supply Schedule – table that demonstrates a relationship between price and quantity supplied for a specific good
Market Supply Schedule
All the supply schedules of individual firms add together
Shows relationship between prices and total quantity supplied by all firms in a particular market
Supply Graph
Graphical representation of a supply schedule
Illustrates the law of supplyAny change in
price moves you along the curve
Changes in SupplyAny factor other than price affects a firm’s ability to supplyCurve will shift
Bad for business, supply curve shifts leftIncreased costs
Good for business, supply curve shifts right Decreased costs
http://www.youtube.com/watch?v=P8G1HIlRppo
Factors Affecting Supply
1. Number of sellers : more sellers means greater supply
2. Expectations - will the economy
grow or weaken?3. Technology – lowers costs
4. Input prices –if input costs rise, supply decreases as profits fall
Government Intervention
Gov’t can affect costs and supply through policySubsidies : gov’t payment to support a business or market
Taxes: increase or lower costsRegulation: increases costs
http://www.youtube.com/watch?v=P8G1HIlRppo
Supply in the Global Economy
Global supply depends on the policies and stability of foreign countriesExternal situations in other countriesDisrupt supply chains
Import restrictions reduce supply
Elasticity of Supply
Measure of how suppliers respond to a price change
Elasticity – supply is very sensitive to price changes
Inelastic – supply is NOT sensitive to price changes
Elasticity of SupplyA supplier’s elasticity is typically dependant upon their ability to react, not so much their willingness.
The greatest factor that affects a producer’s elasticity is time horizonAccording to the law of supply a producer wants to
supply more if prices rise, but can they?
Costs of Production
How many workers should a firm hire?
How much should a firm produce?
How productive is each worker? Marginal Product of Labor – change in
output per workerIncreasing Marginal Returns – more output per worker (specialization)
Decreasing Marginal Returns – the point at which adding more workers decreases returns
Production CostsFixed costs –
have to be paid no matter whether a firm produces or not rent, a loan
Variable costs – may change with the amount produced(electric bill) – raw materials/labor
Total Cost – fixed + variable costsOperating Cost - the daily cost
running a business
OutputProfit = total revenue minus total costs
MR=MC Optimal level of output to ensure profit
Firms will produce until the marginal cost equals the marginal revenue guaranteeing that no more profit can be made
Marginal revenue – additional income from producing one more unit
Marginal cost – additional cost from producing one more item.
MR=MCBecause costs rise as firms increase
output, a firm must find where the curves meet
Equilibrium & StabilityWhen the supply and demand curves meet or intersect the market reaches a clearing price or equilibriumIt is considered stable and balanced At this point the quantity that buyers
demand is equal to the quantity producers supply
Ceilings and FloorsPrice ceiling is a legal
maximum price that can be chargedControls on Rent Binding is below equilibrium
Price Floor is a legal minimum priceMinimum wageBinding is above equilibrium
Are these tactics beneficial?
http://www.youtube.com/watch?v=4MMIkkG8pAQ&feature=related
top related