Chapter 4

 If you earn money by working, about how much per hour do you earn?
 Do you think the amount is appropriate for the work you do?
 Why or why not?

 Serves as an incentive to producers to produce.
 Would you be willing to supply your time and effort for free to a non-charity? Why not?

 Marginal costs of producing:
 The change in costs for an additional output of production.
 Also considered opportunity costs since a company will give up the opportunity to produce something else.
 Higher prices for a product help to cover the higher marginal cost of producing more.

 Demand: the quantity of a good or service
consumers are willing and able to buy at different prices at a particular time.
 Supply: the quantity of a good or service
producers are willing and able to sell at different prices at a particular time.

 Law of Supply: a positive relationship between the quantity supplied and the price of a product.
 Supply is a list of prices and the quantities that a company is willing and able to supply at each price.

 A supply line slopes upward to the right to show that a company is willing and able to sell more at higher prices than at lower prices
 “Supply goes to the sky.”
 Price effect for supply: at higher prices producers are willing and able to provide more product since there is enough “incentive” to cover the higher marginal costs.

 What is the Law of Supply?
 A positive relationship between the price of a product and the quantity supplied
 Which way does the line graphing the Law of
Supply go?
 Shoots to the sky

 All producers are affected by the price effect.
 Each company has different marginal costs to consider.
 The supply that all producers add to the supply becomes the market supply
 Market Supply: the total of all individual suppliers’ products in a market at a particular time.

 What is market supply?
 the total of all individual suppliers’ products in a market at a particular time.

 Elastic: change in price will cause a large change in amount supplied
 Inelastic: change in price has small to no effect in amount supplied
 Elasticity depends on how responsive a company can be to the change in price of a product.

 When the price of a product changes, this is
NOT a change in supply.
 This is a movement along the supply line: change in quantity supplied
 Movement along the supply line is caused by the price effect.
 Supply does not change—Law of supply states that the amount supplied would change at different prices.

 Prices act as messengers: not only to consumers but also to producers.
 As prices rise, producers will want to produce more.

 When supply changes:
 Supply curve shifts
 At every price there will be a change in the amount supplied
 Caused by something OTHER THAN the price

 Marginal costs of production changes
 Lower production costs = more savings. Able to offer the product at a lower cost to consumers

 A change in the number of producers
 More producers = supply curve shifts to the right
 Fewer producers = supply curve shifts to the left

 Change in expectations
 Future prices expect to be higher: shift supply curve for today to the left
 Future prices expect to be lower: shift supply curve for today to the right.