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# Chap. 5

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### Chap. 5

1. 1. Without this, demand would never become satisfied Yes, it’s the world of ___1___
2. 2. Supply is a bit more complicated than demand <ul><li>It is the amount of a product offered for sale at all possible 2 in the market. </li></ul><ul><li>Yes, just like with Demand there is also a law. </li></ul>
3. 3. The Law of Supply <ul><li>Suppliers will normally offer more when prices are ___3___ and less when prices are ___4___. </li></ul>
4. 4. Change in Quantity Supplied <ul><li>A change in quantity supplied is the change in the amount offered for sale in response to a change in ____5____. </li></ul>
5. 5. If prices fall too low what are the two options that a producer faces? <ul><li>6 -They could _____ production. </li></ul><ul><li>7-They could _____ production. </li></ul>
6. 6. When ___8____rise, then the supplier can step up production. <ul><li>This is a win-win because the supplier is happy and so are the workers. </li></ul>
7. 7. A change in supply is different than change in quantity supplied. <ul><li>Change in supply occurs when suppliers offer different amounts of products for sale at all possible ____9____. </li></ul>
8. 8. There are many factors that can cause a change in supply. <ul><li>To the right is a list of those factors. You will need to tell me what they are. It’s almost like “Wheel of Fortune” but with less clapping. </li></ul><ul><li>Cost of In_ _ _ _ 10 </li></ul><ul><li>P_ _ d_ _ t _ _ _ _ y </li></ul><ul><li>level 11 </li></ul><ul><li>_ e_ _ nolo_ _ 12 </li></ul><ul><li>_ ax_ _ 13 </li></ul><ul><li>Su_ s_d_ _ _ 14 </li></ul><ul><li>Expectations </li></ul><ul><li>G_v_ _ _ _ e _ _ </li></ul><ul><li>R_g_ _ation 15 </li></ul>
9. 9. And just like there is elasticity of demand there is also elasticity of supply. <ul><li>With supply elasticity the only real consideration is production. If a firm can react quickly to price changes then there is ____16___. If it cannot then supply is ____17___. </li></ul>
10. 10. <ul><li>Would a food processing firm be supply elastic? 18 </li></ul><ul><li>Would the nuclear power industry be supply elastic? 19 </li></ul>
11. 11. Question 20 <ul><li>Which product is likely to have the most elastic supply curve? </li></ul><ul><li>Automobiles </li></ul><ul><li>Washing machines </li></ul><ul><li>Ice cream cones </li></ul><ul><li>Bridge building </li></ul><ul><li>Oh snap, it would have to be the _______. </li></ul>
12. 12. The Theory of Production <ul><li>There are three stages of production. </li></ul><ul><li>Stage one is when each new worker hired has a positive impact. </li></ul>
13. 13. Stage Two-Diminishing Returns <ul><li>Each new hire has a positive impact on output but not at the same rate as stage 1. </li></ul><ul><li>Stage 3-Too many workers result in negative returns. </li></ul>
14. 14. <ul><li>Stage 1-increasing returns </li></ul><ul><li>Stage 2-diminishing returns </li></ul><ul><li>Stage 3-negative returns </li></ul>
15. 15. Question 21-A company,therefore, that wants to maximize output wants <ul><li>To always be in stage 3 </li></ul><ul><li>To always stay in stage 1 </li></ul><ul><li>To always stay in stage 2 </li></ul>
16. 16. Suppliers have to deal with cost of production <ul><li>There are four basic types of cost. Which of the below is not one of them? (22) </li></ul><ul><li>A. Elastic D. Total </li></ul><ul><li>B. Fixed E. Marginal </li></ul><ul><li>C. Variable </li></ul>
17. 17. Fixed Costs <ul><li>Fixed costs occur even if there is no production. </li></ul><ul><li>Rent </li></ul><ul><li>Salaries </li></ul><ul><li>Taxes </li></ul>
18. 18. Variable Costs <ul><li>These costs vary with production: </li></ul><ul><li>The cost of raw materials </li></ul><ul><li>Hourly wages </li></ul><ul><li>Transportation </li></ul>
19. 19. Total cost is simply adding fixed and variable costs. <ul><li>The last term associated with cost is marginal cost. It is the extra cost incurred when a business produces one extra unit. </li></ul><ul><li>This is important because ___23___ costs stay the same whether a business makes one widget or twenty. </li></ul>
20. 20. For a business to survive it must break even. <ul><li>Break even is when the total output equals the total cost. This occurs somewhere between Stages ___24___. </li></ul><ul><li>Figuring out where this point is is called marginal analysis. It is a cost benefit decision that compares the extra benefits to the extra costs of an action. </li></ul>
21. 21. Marginal Analysis-25 <ul><li>The goal of any business is to do what? </li></ul><ul><li>A.Hit the break even point </li></ul><ul><li>B.Employ as many workers as possible </li></ul><ul><li>C. Make as much product as possible, even at a loss </li></ul><ul><li>D. Reach the profit maximizing quantity of output </li></ul>
22. 22. Huge,huge hint:MR=MC Marginal Revenue=Marginal Cost