CH 5 ECON: Supply

supply

is the desire and ability to produce and sell a product

law of supply

states that when prices decrease, quantity supplied decreases, and when prices increase, quantity supplied increases

supply schedule

lists how much of a good or service an individual producer is willing and able to offer for sale at each price

market supply schedule

lists how much of a good or service all producers in a market are willing and able to offer for sale @ each price

supply curve

shows the data from a supply schedule in graph form

market supply curve

shows the data from a market supply schedule in graph form

marginal product

is the change in total output brought about by adding one more worker

specialization

is having a worker focus on a particular aspect of production

increasing returns

occurs when hiring new workers causes marginal product increase

diminishing returns

occur when hiring new workers causes marginal product decrease

fixed costs

are those business owners incur no matter how much they produce

variable costs

depend on the level of production output

total cost

the sum of fixed and variable costs

marginal cost

the extra cost of producing one more unit

marginal revenue

the money made from the sale of each additional unit of output

total revenue

company's income from selling its products

profit-maximizing output

the level of production at which a business realized the greatest amount of profit

change in quantity supplied

a rise or fall in the amount producers offer for sale because of a change in price

change in supply

occurs when a change in the market place prompts producers to sell different amounts at every price

input costs

price of the resources used to make products

labor productivity

amount of goods and services that a person can provide in a given time

technology

entails applying scientific methods and innovations to production

excise tax

a tax on the making or selling of certain goods or services

regulation

set of rules or laws designed to control business behavior

elasticity of supply

is a measure of how responsive producers are to price changes in the market place

because price and quantity supplied have a direct relationship

why does a supply curve slope upward?

each point represents the quantity supplied by all producers in a market at a given price

what do the points on a market supply curve represent?

the manufacturer would be willing to supply more games to the market

if the price of a video game increased, what would the law of supply predict about the quantity supplied of the game?

both show that quantity supplied is affected by price. the law of supply shows a direct relationship, while the law of demand shows an inverse relationship

how is the law of supply similar to the law of demand? how is it different?

willingness and ability to sell something

what 2 things are associated with supply?

if price is decreased, then producer will make less; if price is higher, then producer will make more
*price goes up, supply goes up
*price goes down, supply goes down

what happens to the producer is the price is lower? (and visa versa)

supply schedule is for the single business owner/individual and how much they're going to make at a certain price

what is supply schedule?

market supply schedule charts all of the producers in that same market to determine what they will sell at a set price

what is market supply schedule?

supply curve shows how much of a good/service the producer is willing to offer at set price

what does supply curve display?

market supply curve shows how much of a good/service the producers are willing to offer at a set price

what does a market supply curve exhibit?

y-axis: price
x-axis: quantity supplied

what does the x and y-axises stand for?

supply curve is always upward sloping

what is always upward sloping?

marginal product is the amount that production increases when each worker is added

what is marginal product?

specialization is when workers are given jobs

what is specialization?

marginal product schedule is the chart that shows the benefit from hiring more workers (not necessarily positive)

what is marginal product schedule?

*if output is increased every time a new worker is added, the marginal product will yield increasing returns
*when adding a new worker causes decreasing returns, it is diminishing returns

when will marginal product yield increasing and diminishing returns in relation to workers/employes?

marginal product will yield increasing returns

if output is increased every time a new worker is added...

marginal product will yield diminishing returns

when adding a new worker causes decreasing returns...

a business wants to make as much profit as possible and that is the $ left over after all sales and costs are paid

what is profit?

business have fixed and variable bosts

what kind of costs does a business posses?

example of fixed costs

(what type of cost) mortgages, rent, machinery

example of variable costs

(what type of cost) materials, workers

total cost is determined when you add these two costs together

how is total cost calculated?

business really want to know how much $ they can make by producing more product- that is marginal cost

what does marginal cost reveal?

marginal cost \= change in total cost ÷ change in total product

what is the equation for marginal cost?

as marginal cost increases, you are experiencing diminishing returns

what happens to returns when marginal cost increases?

marginal revenue is the amount a company makes from each additional sold product

what is marginal revenue?

total revenue \= marginal revenue (price) x total product

what is total revenue's equation?

profit \= total revenue - total cost

what is profit's equation?

marginal cost \= change in total cost ÷ change in total product

what is the equation for marginal cost?

profit \= total revenue - total cost

what is the equation for profit?

when total revenue exceeds total cost, a product has passed the break-even point

what happens when total revenue surpasses total cost?

profit-maximizing output is the level businesses are trying to meet → its when they're making their greatest profit based on a perfect production

what is profit-maximizing output?

because efficiency increases, up to a point

why does the marginal cost in Janine's factory decrease as marginal product increases?

here, for every additional pair of jeans sold, another $20 is earned. So, each additional pair represents one unit of product at the margin

explain why marginal revenue and price are the same

the company's total revenue has become as large as (or larger than) its total costs

what changes for a company when it reaches the break-even point?

marginal analysis is used to help determine profit-maximizing output. the number of employees at this level of output is the number to employ.

how does a business use marginal analysis to decide how many workers to employ?

input cost, labor productivity, technology, producers expectations number of producers

what are the 6 factors that lead to supply curve?

input cost is when a price of a resource needed for production goes up, supply goes down

what is input cost?

leftward shift

what is the shift for input cost?

theres a leftward/backward shift

When theres a decrease in supply...

labor productivity is specialization that will cause an increase in supply because labor is being used more efficiently, better trained, and more skilled employees will also increase supply

what is labor productivity?

shift to the right

labor productivity will cause what kind of shift?

as new scientific methods and better machines increase production, supply will increase

what is technology?

shift to the right

what is the shift for technology?

taxes and regulations can cause a shift in supply to the right when the taxes and regulations are decreased; and opposite when its increased

what is government action?

excise tax is a tax on the making or selling of certain goods or services

what is excise tax?

alcohol and cigarettes

what is an example of an excise tax?

companies will try to predict costs for the future, weather,

what are producers expectations?

the more producers that exist in the same market, will reduce the supply and cause a leftward shift

what are the number of producers?

the costs of labor, power, and machinery

what else besides raw materials would be included in input costs?

an increase in oil prices would translate to an increase in shipping costs-another input cost

why might an increase in oil prices lead to a decrease in the supply of fruits and vegetables in your local supermarket?

excise taxes increase producer costs and therefore decrease supply, while subsidies decrease producer costs and increase supply

why do excise taxes and subsidies affect supply differently?

yes. examples should show that the expectation of an increase in price causes an increase in supply, while expectation of a decrease in price causes a decrease in supply

does expectation of change in price affect supply? illustrate your answer with examples.

elasticity of supply shows how the producer will increase or decrease their amount of supply

what is elasticity of supply?

if the percentage change in price is less than percentage in supply, it is elastic

when is the supply elastic?

supply is inelastic when the resources are limited

when is supply inelastic?

elasticity of supply is affected by a change in production in a response to a change in price

what is elasticity of supply?

elasticity of supply is the measure of how responsive producers are to price changes

what does elasticity of supply measure?

elastic

what does a larger change in quantity mean? (in relation to elasticity)

more horizontal then vertical

greater changes in slope means...

elasticity of supply increases forms of goods and services

what does elasticity of supply influence?

ease of changing production to respond to price changes the main factor in determining elasticity of supply

what changes the main factor in determining elasticity of supply?

both measure responsiveness of the market to price changes. elasticity of supply relates to producers; elasticity of demand relates to consumers

how is elasticity of supply similar to elasticity of demand? how is it different?

inelastic-there is only so much and more cannot be "produced" to meet increased demand

is the supply of genuine antique furniture elastic or inelastic? why?

industries that have elastic supply do not require lots of capital, skilled labor, or rare resources; those with inelastic supply are the opposite

what is the difference between industries that have elastic supply and those that have inelastic supply?

the ease with which a producer can change production to respond to price changes is the main factor that affects supply. producers that can respond more easily and quickly will have more elastic supply than producers who have a difficult time responding to price changes.

what is the main factor that affects elasticity of supply and how does it affect elasticity?

supply

quantity of a product that producers willing and able to offer for sale

law of supply

according to \__________, when price increases, quantity supplied increases, and when price decreases, quantity supplied decreases

supply schedule, supply curve

quantity supplied can be displayed on a chart called a \__________ or on a graph called a \____________

marginal product, total product

\__________ is the change in \________ caused by hiring one additional worker

diminishing returns

when marginal product begins to decrease, production is the stage of \_____________

fixed costs

total cost is the sum of \________ and variable costs

marginal cost

\_________ is the additional cost of producing on more unit.

marginal revenue, profit-maximizing output

when marginal cost equals \________, a company has reached \__________