Ch 7: Costs, Supply, and Total Surplus: Notes for Economic Exam

  • ## Costs and the Supply Curve
  • Definition of Cost (Opportunity Cost):
    • The value of everything a seller must give up to produce a good or service.
    • This includes not just explicit monetary expenses but also the implicit costs, such as the seller's own time or alternative uses for resources.
    • Example: For a hot dog vendor, costs include the wholesale cost of hot dogs, buns, condiments, renting/buying a hot dog cart, and the opportunity cost of the vendor's own time (what they could have earned elsewhere).
  • The Supply Curve as a Measure of Cost:
    • The supply curve reflects the costs of all resources involved in production.
  • Lawn Mowing Business Example:
    • Three potential lawnmowers with different opportunity costs (willingness to sell):
      • Jack: Willing to mow for at least 1010.
      • Janet: Willing to mow for at least 2020.
      • Chrissy: Willing to mow for at least 3535.
    • A seller will produce and sell a good/service only if the market price exceeds their cost.
    • Therefore, cost is a measure of a seller's willingness to sell.
  • Deriving the Supply Curve (from Lawn Mowing Example):
    • If the market price is 0 ext{ to } $9: No one will mow (Jack won't even do it for less than 1010).
    • If the market price is 10 ext{ to } $19: 11 person will mow (Jack).
    • If the market price is 20 ext{ to } $34: 22 people will mow (Jack and Janet).
    • If the market price is 35extormore35 ext{ or more}: 33 people will mow (Jack, Janet, and Chrissy).
    • Observation: As the price increases, the quantity of services sellers are willing to bring to the market (number of lawns mowed) increases, creating an upward-sloping supply curve.
    • This