Transcript supply
Supply Tuesday, February 8th Please take out your Unit 2 Openers Opener Opener Foreign-Born NBA players 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 38 41 46 63 65 81 82 89 94 99 106 Average NBA salary: 1997: $2 million/year 2006: $4 million/year 2010: $5.84 million/year Opener What is the law of supply? How does the law of supply explain the increase in NBA players from overseas? What do you think would happen to the amount of foreign players if the average NBA salary decreased? Why? Defined The willingness and ability of producers to offer goods and services for sale Remember, producers always want to make a profit Therefore: When prices go down, quantity supplied goes down When prices go up, quantity supplied goes up This concept is called the Law of Supply Unlike demand, supply has a direct relationship What is Supply? --------------------- Law of Demand Law of Supply What are Supply Schedules & supply curves? Defined A table that shows how much of a good or service a producer is willing and able to offer for sale at each price in the market Can be used for a single producer or for an entire market Supply Schedules Defined A graph that shows how much of a good or service a producer is willing and able to offer for sale at each price in the market Can be used for a single producer or for an entire market Supply Curves A supply curve is the representation on a graph of the information found on a supply schedule Supply Schedules Supply schedule is two-column table Left-hand column lists various prices of a good or service Right-hand column shows quantity supplied at each price Supply Schedules Supply Curves Supply curve is graphic representation of law of supply Supply schedule and curve are based on the assumption that all economic factors except price remain the same Supply Curves Costs of production What are the costs of production? Costs that producers must pay in order to produce an item for sale Why do they matter? Helps producers understand if it makes economic sense to sell an item or provide a service The Costs of Production Marginal product Defined: The change in total product that results from hiring one more worker How much product is made when you have four workers? Five workers? Six workers? What is the marginal product of increasing from 4 to 5 workers? Specialization Defined: Having a worker focus on one aspect of production New workers help with other tasks so more product is being made, leading to an increase in marginal product The Costs of Production What information can you get with a marginal product schedule? Increasing returns Diminishing returns New workers cause marginal product to increase When new workers cause total output to grow, but at a decreasing rate Negative returns Output decreases through crowding, disorganization The Costs of Business There are two types of costs that come with running a business Fixed Costs Defined: Expenses owners pay no matter how much they produce These costs do not go up and down based on production Examples include mortgage, insurance, manager salaries Variable Costs Defined: Expenses that change as level of output changes These costs do go up and down based on production Examples include workers’ wages, electricity, materials, shipping The more a business produces, the more variable costs increase In order to cut costs, businesses cut back business hours, reduce The Costs of Business With the totals determined for marginal costs and fixed costs, how can this information help you as a producer? Total cost The sum of fixed and variable costs Marginal cost The additional cost of making one more unit of the product - - - - Earning the Highest Profit Marginal Revenue Total Revenue Money made from sale of each additional unit sold This amount is the product/unit’s price This is the amount of income from selling a product Total revenue = P (marginal revenue) x Q (total product produced) 20 x 7= 140 Total Profit Total revenue - total cost 140-102= 38