Supply

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Supply

  1. 1. Supply
  2. 2. What is Supply? <ul><li>What is the difference between supply and demand? </li></ul><ul><li>How do we graph supply? </li></ul><ul><li>What is the supply curve? </li></ul>
  3. 3. Supply <ul><li>Quantity of a product that is offered for sale. </li></ul><ul><li>Law of Supply is the idea that more of a product will be sold for a high price and less will be offered for a low price. </li></ul>
  4. 4. Individual and Market Supply Curves <ul><li>The curves follow the same concepts that the demand curves follow. </li></ul><ul><li>Individual Supply involves the quantities provided by only one firm. </li></ul><ul><li>Market curves are the sum of more than one firm and the quantities. </li></ul>
  5. 5. Changes in Supply <ul><li>Changes in quantity of supply move up and down the curve. </li></ul><ul><li>Changes in supply are the movement of the curve within the graph. </li></ul>
  6. 6. Factors that affect supply <ul><li>Costs of inputs </li></ul><ul><li>Productivity </li></ul><ul><li>Technology </li></ul><ul><li>Taxes </li></ul><ul><li>Expectations </li></ul><ul><li>Govt. Regulation </li></ul><ul><li>Number of sellers. </li></ul>
  7. 7. Costs of inputs and Productivity <ul><li>Costs of inputs can change supply. An example would be the cut in production costs or labor cost. This is inversely related. </li></ul><ul><li>Productivity will allow for companies to manufacture at a more efficient rate. If efficiency goes up so will supply. </li></ul>
  8. 8. Technology and Taxes <ul><li>New technology will lead to an increase in supply. </li></ul><ul><li>Taxes have an inverse effect on the supply curve. If taxes go up, supply goes down and vice versa. </li></ul><ul><li>Subsidies will lower the cost of production and will force supply up, when they are removed, supply goes down. </li></ul>
  9. 9. Expectations, Govt. Regs, and Sellers <ul><li>Firms gamble with the price and quantity of a product. If they expect price to go up, they will hold some inventory. </li></ul><ul><li>Govt. regulation can affect the cost of production. </li></ul><ul><li>Numbers of producers affect the market because when there are more to produce the product, there will be a higher supply of that product. </li></ul>
  10. 10. Elasticity of Supply <ul><li>Responsiveness </li></ul><ul><li>Elastic supply occurs when the change in P causes a relatively large change in Q. </li></ul><ul><li>Inelastic supply occurs when the change in P causes little change in Q. </li></ul><ul><li>Unit elasticity of supply happens when proportional change occurs. </li></ul>
  11. 11. Determinants <ul><li>If a firm can adjust to the changes in price, then there will be a more likely chance for elasticity to occur. </li></ul><ul><li>Some commodities have an inelastic effect because of the production costs. </li></ul>
  12. 12. Demand vs. Supply elasticity <ul><li>The two differ for the following reasons </li></ul><ul><ul><li>Substitution has no real effect on supply. </li></ul></ul><ul><ul><li>The delay to purchase has no real effect either. </li></ul></ul><ul><ul><li>Only production variables play a role in the elasticity of supply. </li></ul></ul>
  13. 13. The Theory of Production <ul><li>What is the theory of production? </li></ul><ul><li>What are the three stages of production? </li></ul><ul><li>What is diminishing return? </li></ul>
  14. 14. Theory of Production <ul><li>Explains the relationship between land, labor, capital, and the output of goods and services. </li></ul><ul><li>Deals with the short run, which calls for change in production and its relation to labor. </li></ul>
  15. 15. Short run vs. Long run <ul><li>Short run deals with just labor, while long run allows for a firm to adjust over an extended period of time. </li></ul>
  16. 16. The Law of Variable Proportions <ul><li>The Law of Variable Proportions is an extension of the theory of production. It says that changes will occur in the short run if you adjust just one factor. </li></ul><ul><li>It answers the question: How will the final product turn out if I adjust an input or variable? </li></ul>
  17. 17. Production function <ul><li>Illustrates the Law of Variable Proportions. </li></ul><ul><li>Relationship between production variables and output. </li></ul><ul><li>Usually graphed as a production schedule. </li></ul>
  18. 18. Three stages of Production <ul><li>Stage 1- As the number of workers increases, they make better use of machinery and resources. Known as stage of increasing returns. </li></ul><ul><li>Stage 2- Output increases at a decreasing rate. This is known as diminishing returns. </li></ul><ul><li>Stage 3- Marginal product occurs and the firm produces at a negative rate. </li></ul>
  19. 19. Section 2-8 Click the mouse button or press the Space Bar to display the information.
  20. 20. Section 2-9
  21. 21. Costs, Revenue, and Profit Maximization <ul><li>What are the four types of cost? </li></ul><ul><li>What are the two types of revenue? </li></ul><ul><li>How do we apply cost principals? </li></ul>
  22. 22. Costs (4 types) <ul><li>Fixed cost- business incurs no matter what. Ex. Salaries, interest payments, rent, taxes, machinery. </li></ul><ul><li>Remains the same no matter what. </li></ul>
  23. 23. More costs <ul><li>Variable costs- costs change with the rate of production, usually represents labor and raw materials. </li></ul><ul><li>Total Cost-Variable costs + Fixed Costs. </li></ul><ul><li>Marginal Costs- extra costs (variables) that come with an adjustment to production. </li></ul>
  24. 24. Section 3-7
  25. 25. Applying Cost Principals <ul><li>Combination of costs and inputs affect the way businesses produce. </li></ul><ul><li>Gas stations have high fixed costs due to equipment and taxes, but have a low amount of variable costs. </li></ul><ul><li>E-commerce is the exact opposite. It has a low overhead, but high ratio of variable costs. </li></ul>
  26. 26. Revenue <ul><li>Total revenue is number of units sold multiplied by the price of product. </li></ul><ul><li>Marginal revenue is extra revenue. </li></ul>
  27. 27. Marginal Analysis <ul><li>Cost benefit analysis used to measure profit maximizing potential. </li></ul><ul><li>Companies will either hit the break-even point. </li></ul><ul><li>Certain scenarios call for certain measures. </li></ul>
  28. 28. <ul><li>Profit maximizing qty. of output is reached when Marginal revenue (MR)=Marginal Cost (MC). </li></ul>

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