Transcript Supply - Humble ISD

Chapter 5 - Supply
Law of Supply
• Suppliers (Producers) will offer more
goods and services for sale at higher
prices and less at low prices.
• Price and Quantity Supplied (Qs) have a
direct relationship – both increase
together
Graphing Supply
• Supply Schedule – Listing of various quantities
of a particular product supplied at all possible
prices in the market.
• Supply Curve - Graph that illustrates the
various quantities of a product offered at
various prices - always slopes upward.
• Market Supply Curve – Same as Supply Curve
but this applies to all suppliers (producers) in a
given market
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o 5 10
20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 303540 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
Plot the Points
S
P QS
4
3
2
1
o
CORN
Connect the Points
10 20 30 40 50 60 70 80
Quantity of Corn
$5
4
3
2
1
Q
60
50
35
20
5
The Effects on Supply
• Determinants are factors that can effect
suppliers in a particular market in both a
positive and negative fashion.
• We express this on a graph by showing a shift
of the entire curve.
• An increase in Supply shifts the curve to the
right
• A decrease in Supply shifts the curve to the
left
List of Supply Determinants
• Cost of Inputs (Labor, Natural Resources,
Capital Goods)
• Worker performance (Productivity)
• Number of Sellers
• Technology & Innovation
• Taxes & Subsidies
• Government Regulation
• Future Expectations
GRAPHING SUPPLY
Price of Corn
P
$5
S
CORN
P QS
If Supply increases,$5
what happens 4
3
to our curve? 2
4
60
50
35
20
1 5
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
1
Increase
in
Supply
S
S’
CORN
P QS
$5
4
3
Increase 2
in Quantity 1
Supplied
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 80
50 70
35 60
20 45
5 30
Movement Along the Curve
• As was just demonstrated, a price change has
a different effect on Supply than a
determinant would.
• Price changes do not shift the curve but rather
move along it from point to point.
• Determinants = Change in Supply
• Price changes = Change in Quantity Supplied
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
S
What if
Supply
Decreases?
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn Decrease
P
$5
4
3
2
1
o
in
Supply
S’
S
CORN
P QS
$5
4
3
Decrease
2
in Quantity 1
Supplied
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 45
50 30
35 20
20 0
5 --
Quantity Supplied vs. Change in
Supply
• Remember, a determinant change effects the
entire curve. A price change simply moves
along the curve.
• Anytime its says “change in quantity supplied”,
understand this is a price change and will only
move along the curve.
• When its says just “change in supply”, this is a
determinant change and will move the entire
curve.
Supply Elasticity
• Just as for Demand, Supply also has 3 different
elasticity levels.
• Elastic – Production can easily increase due to
a change in price (Candy, Toys, Textiles)
• Inelastic – Production stays roughly the same
even though prices are increasing (Oil, Natural
Gas)
• Unit elastic – Production increase is
proportional to price change
The Theory of Production
Section 2
Terminology
• Theory of Production – Relationship between
Factors of Production and Output of goods &
services
• Short run – Time period in which suppliers can
only adjust labor
• Long run – Time period in which suppliers can
adjust for all factors of production
• Input – Necessary resources for production
• Output – What is produced, TOTAL PRODUCT
Law of Variable Proportions
• At some point, additional inputs will not
lead to greater output.
• Production Function – Shows specifically how
output is affected by the addition of a single
input – usually as a schedule or chart. (Page
124)
Stages of Production
• 3 Stages
• Stage I – Too many resources per worker, workers
need to be added to achieve maximum output
• Stage II – Principle of diminishing returns, output
starts to decrease as workers are added
• Stage III – Too many workers hired. Marginal product
becomes negative as output decreases.
Cost, Revenue, & Profit
Maximization
Section 3
Measures of Cost
• Fixed Costs (Overhead) – Costs such as rent
and interest. They do not change from month
to month, or in some cases, year to year.
• Variable Costs – Costs that fluctuate based on
output or production.
• Total Costs – Variable + Fixed
• Marginal Cost – Change in or extra cost
incurred when a single unit of output is
produced
E-Commerce
• Internet businesses
help themselves by
keeping fixed costs very
low compared to that of
a company who
operates out of a
physical location.
Measures of Revenue
• Total Revenue - # of units sold multiplied by
the average price per unit.
• 7units X $15 = $105 in Total Revenue
• Marginal Revenue – Key factor in determining
profitability. Represents the extra revenue
gained by each additional input.
• $105 / 7units = $15 Marginal Revenue
Marginal Analysis
• Break Even Point – The total revenue
necessary to pay for all costs associated with
production.
• Profit Maximizing Quantity of Output –
Achieved when marginal cost = marginal
revenue. Other production combinations may
yield equal revenues. They will not be as
profitable however.