Transcript CHAPTER 5 WHAT IS SUPPLY?

CHAPTER 5
SUPPLY
By
Mr. Pillsbury
10 vocabulary words
What is Supply?
Section 1
 If someone asks you
to supply babysitting
or yard work after
school , what is the
first thing that comes
to mind?
 WHAT IS THE PAY?
The more the pay the
more you are willing to
do.
What is Supply?
Section 1
 Supply: Schedule of
quantities that would be
offered for sale at all
possible prices. See page
114.
How does supply differ
from demand?
 Supply is the ability and
willingness to offer
products for sale over a
wide range of prices
 Demand –ability and
willingness to purchase
products over a wide
range of prices.
What causes a changes in
supply?
 Costs of inputs- For
example T-shirts got
cheaper because of cotton
/ink getting cheaper.
 Productivity- If
management motivates
workers to do a better
job. IE: Building a house.
 Technology- A new
machine or chemical is
invented. When costs go
down people will make
more.
What causes a change in
supply?

Taxes and subsidies- When
costs of production go up supply
curve shifts to left.

Government Regulations:
When government mandates
new fuel requirements that will
affect supply.

Number of sellers- Number of
people selling that good.

http://www.made-inchina.com/
What causes a change in
supply?
 Expectations: If
producers think the price
of their product will go up
they will hold back on the
supply of a product.
 Equity in Home: When
people feel that they have
a lot of equity in their
homes they buy things.
(IE: Cars)
ELASTICITY

Elasticity of Supply- tells the
way in which changes in the
quantity supplied are affected by
changes in price. TURN TO PAGE
119 and read and have 3 people
explain.

Demand and Supply Elasticity:
Little or no difference exists
between supply and demand
elasticity. If quantities are being
purchased the concept is
demand elasticity. If quantities
are being brought to market for
sale, the concept is supply.

Keep in mind that elasticity is
simply a measure of the way
quantity adjusts to a change in
price.
The Theory of Production
Section 2
 Have you ever worked to
hard at something—where
the outcome of your
efforts was less than the
work involved? (56
Chevy/ razor) Sometimes
you reach a stage of
diminishing returns, a
stage where you still
make progress but at a
diminished rate.
Law of Variable Proportions
 Law of Variable
Proportions: states that in
the short run, output will
change as one input is varied
while the others are held
constant.
 IE: As you add chili powder
to chili the chili will change
until it does not taste like
chili anymore. The workers
in a business are the chili
powder and you need to find
out what the perfect amount
of chili powder is.
It is all about how the
output is affected by inputs.
Theory of Production

Production function: see page
123 and it is a schedule that
relates changes in output to
different amounts of a single input.

Total product: total output
produced by the firm.

Marginal Product: The extra
output generated by adding one
more unit of variable output. The
amount of product that one extra
worker can produce.
This will be really important in our
current economic times. How many
workers do you need to still be
successful.
The production function
shows the Law of Variable
proportions
3 Stages of Production

1. Increasing Returnshiring the first 5 workers
each worker contributes more
than the previous.

2. Diminishing Returns- As
more units of a certain
variable are added, each
additional worker diminishes
the return. Total production
keeps growing but by smaller
and smaller amounts.

3. Negative returns- Too
many workers have been
hired, and are getting in each
others way. Production is
decreasing.
Anticipatory set
Section 3
 Have you thought about what you will do
after graduating from high school?
 Go to college?
 Get a job?
 Have you considered the cost of these
options?
 Economists view options in terms of
marginal cost- in this case, the additional
cost of getting more education versus cost
of going directly into the job market.
Cost, Revenue, and Profit Maximization
Section 3 FOUR MEASURES OF COSTS
 Fixed Costs: the cost that a business incurs even if the
car wash is idle and output is zero. IE: rent, taxes,
salaries
 Variable Costs: the cost that does change when the
business rate of operation or output changes. IE:
electric power, freight charges, labor.
 Total Costs: is the sum or the fixed and variable costs.
 Marginal Costs: the extra cost incurred when a
business produces one additional unit of a product.
Cost, Revenue, and Profit
Maximization
 1. Applying Cost Principles: The cost
and combination of inputs affects the
way businesses produce.
 Self Service Gas Station
 Internet Stores
Cost, Revenue, and Profit
Maximization
Measures of Revenue:
 1. Total Revenue: Is the number of units
sold multiplied by the average price per
unit.
 2. Marginal Revenue: The extra revenue
associated with the production and sale of
one additional unit.
THE END
Homework
 Find someone you know who owns
their own business and ask them the
4 measures of costs.
 http://www.bizstats.com/servicestations.ht
m
MORE STUFF
 Who is making more money Honda or
Toyota? How would you know?
 http://finance.yahoo.com/q/is?s=HMC&ann
ual
 http://finance.yahoo.com/q/is?s=TM&annu
al
 What type of business would you
own? Why?
THE END
TASK
 Pass out Car Wash project!!