Econ Ch5 Supply

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  • 1. Chapter Supply 5
  • 2. Chapter Objectives
    • Students will learn:
    • How the law of supply works.
    • To apply it to simple situations.
    • How the law of variable proportions applies to productivity.
    • What factors cause a change in market supply.
  • 3. Defining Supply
    • Market: exchange between buyers and sellers of goods and services.
    • Supply : the amount of goods and services that sellers are willing to sell at various prices at particular times.
    • Demand : the amount of goods and services consumers are willing to buy at various prices at particular times.
  • 4. The Law of Supply
    • “ If all other things are equal, the higher the price of a product or service, the more of it suppliers will offer for sale .”
    • The reverse is also true:
      • “ The lower the price of a product or service, the less of it suppliers will offer for sale.”
  • 5. Profit Motive:
    • The law of supply is based on the profit motive.
    • Can you explain how?
    • Profit Motive:
      • The desire of individuals and businesses to make money.
  • 6. Graphing Supply
    • Supply schedule: list of quantities supplied at various prices.
    • Supply curve: points on a graph connected by line.
  • 7. NOTICE: In what direction does the supply curve go?
  • 8. Factors of Production
    • Natural Resources
    • Labor
    • Capital Resources
    • Suppliers use the factors of production to produce a product or service.
    • A change in the amount of any of these resources can affect supply in the long run .
    • Only labor can affect production in the short run .
  • 9. The Law of Variable Proportions
    • “In the short run, output or supply will change as one resource is varied, even though other resources do not change.”
    • Relationship:
    • Input of resources—supply of good or service
  • 10. Marginal Product:
    • Extra output or change in the total product caused by adding a worker.
    • Why does adding a sixth worker increase the marginal product less?
  • 11. Stages of Production
    • 1 st stage: adding more workers results in more efficient use of tools and resources.
    • 2 nd stage: Total product keeps growing but by smaller and smaller returns ( principle of diminishing returns ).
    • 3 rd stage: Negative returns.
  • 12. Marginal Product Simulation:
    • Directions:
    • Carry paperclips, one at a time, from the first container to the second, and from the second to the third, as quickly as possible, without running.
    • Each paperclip must be set down and released into the container before it can be picked up and moved again.
    • Each paperclip must be placed in all containers along the way.
    1 2 3
  • 13. Market Supply
    • Sellers can be companies or individuals.
    • Market supply =
    • total output of all sellers within a market.
  • 14. Changes in Market Supply
    • Causes of shifts in supply:
      • Productivity
      • Taxes=costs more
      • Subsidy=costs less
      • Regulation=rules that control (Ex: FDA)
      • Opinions=predicting the future
      • Competition
        • More sellers increase supply
        • Fewer sellers decrease supply
    • Supply Elasticity