Explorations in Economics
Alan B. Krueger & David A. Anderson
Story of Corn
What does corn do?
• Popcorn
• Feeds animals
• Produce ethanol
Playstation example
• Firms began to grow corn
and stopped growing other
goods
• Every state produces it but
Alaska and Hawaii.
• From 2005 to 2008, price
goes from 2$ to 6$. What
happened?
• Playstation 3 vs. Older
Playstation: 249 vs. 600?
What caused the lower
pricing? Technology,
competition among sellers,
and cost of inputs.
• The Draw of High Coffee
Prices
Starbucks rise in price has made what
happen?
McDonalds
Dunkin Donuts
Caribou Coffee
3/11/2016
Chapter 5-Mods 13, 14 & 15
MODULE 13:
Understanding Supply
KEY IDEA:
Producers respond to price changes, offering more goods for
sale when prices increase and fewer goods when prices
decrease.
OBJECTIVES:
• To explain the concept of supply and the law of supply.
• To explain the relationship between a supply schedule and a
supply curve.
• To identify the factors that cause the quantity supplied to
be more or less responsive to price changes.
THE QUANTITY SUPPLIED
Profit is the total revenue
a firm receives from
selling its product minus
the total cost of
producing it.
The quantity supplied is
the amount of a good
that firms are willing to
supply at a particular
price over a given period
of time.
THE LAW OF SUPPLY
According to the law
of supply, an increase
in the price of a good
leads to an increase
in the quantity
supplied. (exampleTutoring in the
community)
What do the Law of Demand and
Law of Supply mean
• Law of demand- P up, qd down; P down, qd up
• Law of supply- P up, qs up; p down, qs down
• What do you notice about the two laws? They are
opposite and move in different directions. Demand is
an inverse relationship between P and QD. Supply is a
direct relationship between P and QS.
• Why do you think that is?
• Suppliers are worried about making money and
consumers are worried about saving money.
3/11/2016
Chapter 5-Mods 13, 14 & 15
THE SUPPLY SCHEDULE AND
THE SUPPLY CURVE
The supply schedule for a good is a table listing the
quantity of the good that will be supplied at specified
prices.
THE SUPPLY SCHEDULE AND THE
SUPPLY CURVE
A firm’s supply curve is a graphical representation of
the supply schedule, showing the quantity the firm will
supply at each price.
THE MARKET SUPPLY CURVE
THE MARKETS WITH
SUPPLY CURVES
There is perfect competition in a
market when there are many firms
selling identical goods, firms are free to
enter and exit the market, and
consumers have full information about
the price and availability of goods.
THE MARKETS WITH
SUPPLY CURVES
There is perfect competition among firms when:
1. Every unit of the good sold in the market is identical,
regardless of which firm is selling it.
2. The good is produced by many firms, none of which is large
enough to influence the price of the good.
3. New firms that want to supply the good are free to enter
the market, and existing firms that want to stop supplying it
are free to exit the market.
4. Consumers are aware of the price charged by the various
firms and have the opportunity to buy from whichever firm
they choose.
ELASTICITY OF SUPPLY
The elasticity of supply is a measure of the responsiveness of the quantity
supplied to price changes, calculated by dividing the percentage change in
the quantity supplied by the percentage change in price.
Elasticity of Supply
Elasticity of Supply
MODULE 13 REVIEW
What is…
A. Profit?
B. Quantity supplied?
C. Unit- elastic supply?
D. Elastic supply?
E. Supply schedule?
F. Supply curve?
G. Market supply curve?
H. Elasticity of supply?
I. Law of supply?
J. Inelastic supply?
K. Perfect competition?
MODULE 14:
SHIFTS OF THE SUPPLY CURVE
KEY IDEA:
The supply curve can shift because of changes in the cost of
inputs, government policies, the number of firms, technology,
weather, and expectations about future prices.
OBJECTIVES:
• To differentiate between a movement along the supply
curve and a shift of the supply curve.
• To explain how changes in factors other than price cause
the supply curve to shift.
• To recognize which types of changes cause the supply curve
to shift to the left or to the right.
WHEN OTHER FACTORS
CHANGE
A shift of the supply
curve is the result of a
change in the quantity
supplied at every price,
not to be confused with a
movement along the
supply curve, which is the
result of a change in the
price.
FACTORS THAT SHIFT
THE SUPPLY CURVE
The cost of inputs
Government policies
Taxes
Regulations
Subsidies
The number of firms
Technological change
Natural disasters and
weather
Expectations about future
prices
FACTORS THAT SHIFT
THE SUPPLY CURVE
The cost of inputs
Government policies
Taxes
Regulations
Subsidies
The number of firms
Technological change
Natural disasters and
weather
Expectations about future
prices
MODULE 14 REVIEW
What is…
A. Change in supply?
B. Technological progress?
C. Change in the quantity supplied?
D. Inventory?
E. Subsidy?
MODULE 15:
PRODUCTION, COST & THE PROFITMAXIMIZING OUTPUT LEVEL
KEY IDEA:
Firms can maximize their profit by producing the quantity
that equates marginal revenue and marginal cost.
OBJECTIVES:
• To explain the components of total cost.
• To identify the condition for profit maximization.
• To explain how a profit-maximizing entrepreneur decides
whether to open a new firm and whether to shut down an
existing firm.
UNDERSTANDING
PRODUCTION
The short run is the period of time during which
the quantity of at least one input is fixed.
The long run is the period of time in which the
quantities of all inputs are variable.
UNDERSTANDING
PRODUCTION
A production schedule indicates
the inputs needed to produce
different quantities of output.
UNDERSTANDING
PRODUCTION
The marginal product of labor is the amount by
which total output increases when one more
worker is hired.
Diminishing marginal productivity describes the
decrease in the marginal product of a variable
input, such as labor, as more and more of it is
combined with a fixed input, such as equipment.
THE COST OF PRODUCTION
Fixed cost is the cost of
inputs that do not vary
with the amount of
output produced.
Variable cost is the cost of
inputs that do vary with
the amount of output
produced.
THE COST OF PRODUCTION
Marginal cost is the additional cost of producing one more unit
of output. Marginal cost is calculated as the change in total cost
divided by the change in output.
PROFIT MAXIMIZATION AND
MARGINAL ANALYSIS
The profit maximizing output
level is the amount of output
that gives a firm as much
profit as possible.
Marginal revenue is the
additional revenue a firm
receives from selling another
unit of output.
PROFIT MAXIMIZATION AND
MARGINAL ANALYSIS
Firms will produce where MR=MC.
That is the profit maximizing output.
MODULE 15 REVIEW
What is…
A. Short run?
B. Marginal product of
labor?
C. Long run?
D. Marginal revenue?
E. Law of diminishing
returns?
F. Fixed cost?
G. Variable cost?
H. Profit- maximizing
output level?
I. Total cost?
J. Output?
K. Diminishing marginal
Productivity?
L. Cost minimization?