Econ Ch5 Supply


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Econ Ch5 Supply

  1. 1. Chapter Supply 5
  2. 2. Chapter Objectives <ul><li>Students will learn: </li></ul><ul><li>How the law of supply works. </li></ul><ul><li>To apply it to simple situations. </li></ul><ul><li>How the law of variable proportions applies to productivity. </li></ul><ul><li>What factors cause a change in market supply. </li></ul>
  3. 3. Defining Supply <ul><li>Market: exchange between buyers and sellers of goods and services. </li></ul><ul><li>Supply : the amount of goods and services that sellers are willing to sell at various prices at particular times. </li></ul><ul><li>Demand : the amount of goods and services consumers are willing to buy at various prices at particular times. </li></ul>
  4. 4. The Law of Supply <ul><li>“ If all other things are equal, the higher the price of a product or service, the more of it suppliers will offer for sale .” </li></ul><ul><li>The reverse is also true: </li></ul><ul><ul><li>“ The lower the price of a product or service, the less of it suppliers will offer for sale.” </li></ul></ul>
  5. 5. Profit Motive: <ul><li>The law of supply is based on the profit motive. </li></ul><ul><li>Can you explain how? </li></ul><ul><li>Profit Motive: </li></ul><ul><ul><li>The desire of individuals and businesses to make money. </li></ul></ul>
  6. 6. Graphing Supply <ul><li>Supply schedule: list of quantities supplied at various prices. </li></ul><ul><li>Supply curve: points on a graph connected by line. </li></ul>
  7. 7. NOTICE: In what direction does the supply curve go?
  8. 8. Factors of Production <ul><li>Natural Resources </li></ul><ul><li>Labor </li></ul><ul><li>Capital Resources </li></ul><ul><li>Suppliers use the factors of production to produce a product or service. </li></ul><ul><li>A change in the amount of any of these resources can affect supply in the long run . </li></ul><ul><li>Only labor can affect production in the short run . </li></ul>
  9. 9. The Law of Variable Proportions <ul><li>“In the short run, output or supply will change as one resource is varied, even though other resources do not change.” </li></ul><ul><li>Relationship: </li></ul><ul><li>Input of resources—supply of good or service </li></ul>
  10. 10. Marginal Product: <ul><li>Extra output or change in the total product caused by adding a worker. </li></ul><ul><li>Why does adding a sixth worker increase the marginal product less? </li></ul>
  11. 11. Stages of Production <ul><li>1 st stage: adding more workers results in more efficient use of tools and resources. </li></ul><ul><li>2 nd stage: Total product keeps growing but by smaller and smaller returns ( principle of diminishing returns ). </li></ul><ul><li>3 rd stage: Negative returns. </li></ul>
  12. 12. Marginal Product Simulation: <ul><li>Directions: </li></ul><ul><li>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. </li></ul><ul><li>Each paperclip must be set down and released into the container before it can be picked up and moved again. </li></ul><ul><li>Each paperclip must be placed in all containers along the way. </li></ul>1 2 3
  13. 13. Market Supply <ul><li>Sellers can be companies or individuals. </li></ul><ul><li>Market supply = </li></ul><ul><li>total output of all sellers within a market. </li></ul>
  14. 14. Changes in Market Supply <ul><li>Causes of shifts in supply: </li></ul><ul><ul><li>Productivity </li></ul></ul><ul><ul><li>Taxes=costs more </li></ul></ul><ul><ul><li>Subsidy=costs less </li></ul></ul><ul><ul><li>Regulation=rules that control (Ex: FDA) </li></ul></ul><ul><ul><li>Opinions=predicting the future </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><ul><li>More sellers increase supply </li></ul></ul></ul><ul><ul><ul><li>Fewer sellers decrease supply </li></ul></ul></ul><ul><li>Supply Elasticity </li></ul>