Chapter 5
What is Supply?
• Supply – refers to the willingness and ability of
producers to offer goods and services for sale
• Law of Supply – states that producers are willing to sell
more of a good or service at higher price
• (opposite of demand, in which buyers demand more of
a LOWER priced item)
Supply Schedules & Supply Curves
• Supply schedule – a table that shows how much of a
good or service an individual producer is willing and
able to offer at each price (see page 132)
• Individual (one person) v. market (all producers)
• Supply curve – graph that shows how much of a
good or service an individual producer is willing to
• Individual (one person) v. market (all producers)
• Complete restating and interpreting economic data
• Complete supply curve worksheet on house
cleaning/yard work
What Are the Costs of Production?
• Marginal product – change in total product that results in
hiring one more worker
• Specialization – having each worker focus on a particular
facet of production
• Increasing returns – each new worker adds more to total
• Diminishing returns – each new worker causes total output
to grow but at a decreasing rate (maybe they get in each
others’ way, or not enough work to do, so it is a waste)
Production Costs
• Fixed costs – expenses owners must incur whether they
produce anything or not (rent/mortgage, management)
• Variable costs – business costs that vary as the level of
production changes (worker wages, supplies)
• Total costs – fixed plus variable costs
• Marginal costs – cost of producing one more of a unit
Earning the Highest Profit
• Marginal revenue – added revenue per unit of
output (how much will you make for each unit)
• Total revenue – total income for goods sold (Price
x Quantity)
• Profit maximizing output – when producer realizes
the greatest amount of profit
• Complete Production Costs and Revenues chart
What Factors Affect Supply?
Input Costs
Labor Productivity
Government Action
Producer Expectations
Number of Producers
• Fill in Factors that Affect Supply on worksheet (you can work in
• Once finished, turn over and answer questions on back, identifying
which factor is discussed in each statement
Robert Johnson:
• Read about Robert Johnson and BET on page
• What effects might BET’s success have on
the supply of African-American
What is Elasticity of Supply?
• Elasticity of Supply – measure of how responsive
producers are to price changes
• Supply is more elastic over a longer period of
time, when production can catch up with demand
• Ease of changing production is main factor in
changing supply.
• It is easier to provide more dog walkers than cars
Supply Demand Review Video