Ch 5 Law of Supply

Supply 

The willingness and ability to produce or offer goods/services for sale

The Law of Supply 

as price of a good rises, quantity supplied rises (producers are willing to supply more of it)

• Direct relationship

Marginal

Each additional unit

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.

Increasing returns

Occur when hiring new workers causes marginal products to increase.

Fixed costs

Costs that business owners incur no matter how much they produce. (mortgage, insurance, utilities, salaries)

Variable costs

Costs that depend on the level of production output. (wages, supplies, shipping)

Total cost

The sum of fixed and variable costs.

Marginal cost

The extra cost of producing one more unit.

Law of diminishing returns

Adding units of one factor of production increases total output, but after a certain point the extra output for each additional unit hired will begin to decrease.

Marginal revenue

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

Total revenue

A company’s income from selling its products. Price x quantity purchased

Profit-maximizing output

The level of production at which a business realizes the greatest amount of profit.

Profit =

Revenue - Costs

Revenue =

Price x Quantity Sold

Marginal Revenue =

Price

Marginal cost =

change in total cost/change in total product

Change in supply

Occurs when a change in the marketplace prompts producers to sell different amounts at every price. (shifts the curve, unlike changes in quantity supplied).

Excise tax

A tax on the making or selling of certain goods or services.

Subsidy

A government payment that partially covers the cost of an economic activity.

Regulation

A set of rules or laws designed to control business behavior.

Elasticity of supply

The measure of how responsive producers are to price changes in the marketplace.

Elastic supply

When a change in price leads to a relatively larger change in quantity supplied.

Inelastic supply

When a change in price leads to a relatively smaller change in quantity supplied.