Transcript Elasticity of Supply

Supply
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Marginal Costs and Benefits
Marginal cost
– additional cost of using one more unit of a good or service
Marginal benefit
– additional benefit of using one more unit of a good or service
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What Are the Costs of Production?
How Labor Affects Production
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Marginal product of labor—change in total output caused by adding
one worker
Specialization—having a worker focus on one aspect of production
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Labor Affects Production
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Marginal product schedule—chart showing the relation between
labor, marginal product
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Increasing returns—new workers cause marginal product increase
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Diminishing returns—total output grows at decreasing rate
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Negative returns—output decreases through crowding,
disorganization
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Production Costs
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Fixed costs—expenses owners incur no matter how much they
produce ex. mortgage, rent, taxes
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Variable costs—expenses that vary as level of output changes ex.
electric bill, labor costs
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Total cost—the sum of fixed & variable costs
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Marginal cost—additional cost of making one more unit of the product
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Earning the Highest Profit
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Marginal revenue—money made from sale of each additional unit
sold
– same as price
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Total revenue—income from selling a product
– Total revenue = P (price) x Q (quantity purchased at that price)
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Chapter 5: Supply
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Supply is the willingness and ability of producers to offer goods and
services for sale.
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Most people are producers.
– Ex. doing household chores, working at a job, providing rides to
others.
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What Is Supply?
The Law of Supply
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Supply—willingness & ability of producers to offer goods, services
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Law of supply: producers willing to sell more of product at higher than
at lower price
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The Law of Supply
EX: Price and Supply
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Joe decides to sell tomatoes at a farmers’ market
– willing to offer 24 lbs. at standard price of $1 per lbs.
– willing to offer 50 lbs. at $2 per lbs.
– willing to offer 10 lbs. at 50 cents/lbs.
– not willing to supply any tomatoes below 50 cents
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Supply Schedules
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Supply schedule shows
– amount of product individual is willing/able to offer at each price
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Market supply schedule shows
– amount of product all producers are willing/able to offer at each
price
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Supply Curves
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Supply curve shows data from supply schedule in graph form
Market supply curve shows data from market supply schedule
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Reviewing Key Concepts
Explain the differences between the terms in each of
these pairs:
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marginal product and profit-maximizing output
increasing returns and diminishing returns
fixed cost and variable cost
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Elasticity of Supply
Elastic Supply
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As product gains popularity, shortage develops, price goes up
Producers can increase supply if
– resources are easy to come by & inexpensive
– Production is not complicated & easy to increase
Inelastic Supply
Producers may not increase supply if
-availability of resources limited
-production capacity cannot be increased
-shipping too costly or unavailable
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Quantity Supplied vs. Supply
Change in quantity supplied: rise or fall in amount offered for sale
because of change in price
• Different points on supply curve show change in quantity supplied
• DO NOT SHIFT THE CURVE
Change in supply: producers offer different amounts at every price,
THIS SHIFTS THE SUPPLY CURVE
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Reasons for Changes in Supply
Input Costs: price of resources needed to produce good or service
– if price of resource increases, costs increase and vice versa
Technology: use of scientific methods, discoveries in production that results in
new products or manufacturing techniques, making production more efficient &
enabling workers to be more productive
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Changes in Supply
Government Action
Regulation—set of rules, laws designed to control business behavior
ex: worker safety laws
TAXES increase producers’ costs; decrease supply
SUBSIDIES decrease producers’ costs; increase supply
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Changes in Supply
Future Price Expectations: Producers have expectations about future
price of their product that affect how much they will supply at present
Number of Producers: When one producer has successful new idea,
others enter the market; supply of good/service increases
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What Is Elasticity of Supply?
Elasticity of Supply
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Elasticity of supply—measures producer response to price changes
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Elastic—price change leads to larger change in quantity supplied
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Inelastic—price change leads to smaller change in quantity supplied
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What Affects Elasticity of Supply?
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Main factor determining elasticity is ease of changing production
– given enough time, elasticity rises for most goods and services
Industries that respond quickly to rising or falling prices:
– do not need much capital, skilled labor, hard-to-obtain resources
Other industries need a lot of time to shift resources
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Reviewing Key Concepts
Use each of the terms in a sentence that gives an
example of how the term relates to supply:
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elastic
inelastic
elasticity of supply
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Case Study: Robots—Technology Increases
Supply
Background
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Robots—machines that can be programmed to perform a variety of
tasks—perform numerous functions in industry. Half of all industrial
robots are used in the automobile industry. Robots are ideal for lifting
heavy objects and doing repetitive tasks humans find boring but can
perform more refined tasks as well.
What’s the Issue?
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How does technology increase supply?
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Case Study: Robots—Technology Increases Supply
{continued}
Thinking Economically
1. Which of the six factors that can cause a change in supply is
highlighted in the three documents? Does this factor generally
increase or decrease supply?
2. Which document, B or C, addresses the issue of elasticity? Explain.
3. In which article, A or C, are the robots an example of variable costs?
Why?
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