SUPPLY
Jump Start Chapter 5 section 1
1.
2.
3.
4.
5.
The Law of Supply states that
A.
The quantity supplied varies inversely with its price
B.
The quantity supplied irregularly with its price
C.
The quantity demanded varies inversely with its price
D.
The quantity supplied varies directly with its price
All of the following can cause an increase in supply EXCEPT:
A.
A decrease in the cost of inputs
B.
Fewer sellers in the marketplace
C.
An increase in productivity
D.
A change in taxes or subsidies
Which product is likely to have the most elastic supply curve?
A.
Ice cream cones
B.
Automobiles
C.
Ships
D.
Dishwashing machines
The supply curve is
A.
Downward sloping
B.
Level
C.
Upward sloping
D.
Irregular
Increased government regulations can cause the supply curve to
A.
Shift to the left
B.
Shift to the right
C.
Increase
D.
Decrease
What is Supply?
• Supply is the quantities that would be
offered for sale and all possible prices
that could prevail in the market.
Figure 5.1
The Law of Supply
• The quantity supplied, or offered for sale,
varies directly with its price.
• If prices are high, suppliers will offer greater
quantities for sale. If prices are low, suppliers
will offer smaller quantities for sale.
• A change in overall supply will cause the
Demand curve to shift.
• A change in quantity demanded will move
along the original curve.
Supply Curve
• Individual Curve
– Illustrates how the quantity that a producer makes
varies depending on the price that will prevail in
the market
• Market Curve
– Illustrates the quantities and prices that all
producers will offer in the market for any given
product or service
• Economist analyze supply
– by listing quantities and prices in a supply
schedule
– Forms supply curve with and UPWARD slope
Figure 5.2
Change in Quantity Supplied
• Quantity supplied:
– The amount that producers bring to the
market at any given price
• Change in Quantity Supplied;
– The change in the amount offered for sale in
response to a change in price
Figure 5.1
• Illustrates a change in
quantity supplied
– Shows as a movement
along the line
– Can increase or
decrease amount of
the product
(movement from a to
b)
Change in Supply
• Situation where suppliers offer different
amounts of products for sale at all possible
prices
Figure 5.3
Change in Supply
•
•
•
•
•
•
•
Cost of inputs
Productivity
Technology
Number of sellers
Taxes and subsidies
Expectations
Government Regulations
Elasticity of Supply
• Supply Elasticity: a measure of the way in which
a quantity supplied responds to a change in
price
• Elastic
– Small increase in price leads to a larger increase in
output—supply
• Inelastic
– Mall increase in price causes little change in supply
• Unit Elastic
– A change in price causes a proportional change in
supply
Figure 5.4a
Figure 5.4b
Figure 5.4d
Figure 5.4c
Determinants of Supply Elasticity
• How quickly a producer can act when a
change in price occurs:
– Adjust quickly = elastic
– Complex/advance planning = inelastic
• Factor of Substitution:
– Easy = elastic
– Difficult = inelastic
Chapter 5 section 1 Vocabulary
A.
B.
C.
D.
E.
Supply
Quantity supplied
Supply curve
Supply elasticity
Subsidy
1.
2.
3.
4.
5.
Amount that producers bring to the
market at any given price
Measure of the way in which quantity
supplied responds to a change in
price
A graph showing the various
quantities supplied at each and every
price that might prevail in the market
The amount of a product that would
be offered for sale at all possible
prices that could prevail in the market
A government payment to an
individual, business, or other group
to encourage or protect a certain type
of economic activity
Jump Start Chapter 5 section 1
1.
2.
3.
4.
5.
The Law of Supply states that
A.
The quantity supplied varies inversely with its price
B.
The quantity supplied irregularly with its price
C.
The quantity demanded varies inversely with its price
D.
The quantity supplied varies directly with its price
All of the following can cause an increase in supply EXCEPT:
A.
A decrease in the cost of inputs
B.
Fewer sellers in the marketplace
C.
An increase in productivity
D.
A change in taxes or subsidies
Which product is likely to have the most elastic supply curve?
A.
Ice cream cones
B.
Automobiles
C.
Ships
D.
Dishwashing machines
The supply curve is
A.
Downward sloping
B.
Level
C.
Upward sloping
D.
Irregular
Increased government regulations can cause the supply curve to
A.
Shift to the left
B.
Shift to the right
C.
Increase
D.
Decrease
The Theory of Production
Jump Start Chapter 5 section 2
1.
2.
3.
4.
5.
All of the following are stages of production EXCEPT:
A.
Increasing returns
B.
Diminishing returns
C.
Equaling returns
D.
Negative returns
The period of production that allows producers to change only the amount of the variable input
called labor is:
A.
The long run
B.
The short run
C.
The production function
D.
A stage of production
A production function shows
A.
Changes in output in response to changes in input
B.
Changes in input that result from changes in output
C.
The optimum level of production
D.
The optimum level of the four factors of production
In what order do the three stages of production occur?
A.
Negative returns, diminishing returns, increasing returns
B.
Diminishing returns, increasing returns, negative returns
C.
Increasing returns, diminishing returns, negative returns
D.
Increasing returns, negative returns, diminishing returns
The stages of production are based on
A.
The way total product changes over time
B.
The way marginal product changes as variable inputs are added
C.
The way inputs change in response to business decisions
D.
The way output changes independent of input
The Law of Variable Proportions
• Short Run:
– Output will change as one variable input is altered,
but other inputs are kept constant
– i.e.: salting a meal (amount of input –salt- varies; so
does the output – quality of the meal)
• Final Product is affected
– How is the output of the final product affected as more
units of one variable input or resources are added to
a fixed amount of other resources?
– i.e.: farmer may have all the land, machines, workers,
and other items needed to produce a crop, but may
have questions about the use of fertilizers ,
The Production Function
• Concept that describes the relationship
between changes in output to different
amounts of a single input while others are
constant
The Law of Variable Proportions
• Possible to vary all the inputs at the same
time
– Economist prefer only a single variable be
changed at a time
– b/c more than one = harder to gauge the
impact of a single variable
The Production Function
• Total product is the total output the
company produces
– Total Product Rises
• As more workers are added, total product rises
until a point that adding more workers causes a
decline in total product
– Total product Slows
• As more workers are added output continues to
rise = it does so at a slower rate until ti can grow
no further
– More workers “get in the way”
The Production Function
• Marginal Product is the extra output or
change in total product caused by adding
one more unit of variable output
– i.e.: worker 1’s output is 7; worker 2’s output is
13 together their output is 20 (figure 5.5)
Figure 5.5a
Figure 5.5b
Three Stages of Production
• Stage I: increasing returns
– Marginal output increases with each new worker
– Companies are tempted to hire more workers (moves
them to stage II)
• Stage II: diminishing returns
– Total production keeps growing but the rate of
increase is smaller
– Each worker is still making a positive contribution to
total output (but diminishing)
• Stage III: negative returns
– Marginal product becomes negative
– Decreasing total plant output
Chapter 5 section 2 Vocabulary
A. Law of variable
Proportions
B. Production
function
C. Raw materials
D. Marginal product
E. Total product
1. Concept that describes the
relationship between changes
in output to different amounts
of a single input while other
inputs are held constant
2. Total output produced by a
firm
3. The extra output or change in
total product caused by the
addition of one more unit of
variable output
4. Unprocessed natural products
used in production
5. States that in the short run,
output will change as one
input is varied while the others
are held constant
Jump Start Chapter 5 section 2
1.
2.
3.
4.
5.
All of the following are stages of production EXCEPT:
A.
Increasing returns
B.
Diminishing returns
C.
Equaling returns
D.
Negative returns
The period of production that allows producers to change only the amount of the variable input
called labor is:
A.
The long run
B.
The short run
C.
The production function
D.
A stage of production
A production function shows
A.
Changes in output in response to changes in input
B.
Changes in input that result from changes in output
C.
The optimum level of production
D.
The optimum level of the four factors of production
In what order do the three stages of production occur?
A.
Negative returns, diminishing returns, increasing returns
B.
Diminishing returns, increasing returns, negative returns
C.
Increasing returns, diminishing returns, negative returns
D.
Increasing returns, negative returns, diminishing returns
The stages of production are based on
A.
The way total product changes over time
B.
The way marginal product changes as variable inputs are added
C.
The way inputs change in response to business decisions
D.
The way output changes independent of input
Cost, Revenue and Profit
Maximization
Jump Start Chapter 5 section 3
1.
2.
3.
4.
5.
Cost and benefit decision making that compares the extra benefits to the extra cost of
an action is called?
A.
Marginal revenue
B.
Marginal cost
C.
Marginal analysis
D.
Marginal output
The total cost of production is determined by
A.
Adding fixed cost and variable cost
B.
Adding marginal and fixed cost
C.
Multiplying fixed and variable cost
D.
Multiplying marginal and fixed cost
All of the following are examples of variable costs EXCEPT:
A.
Labor
B.
Freight
C.
Interest payments on bonds
D.
Electricity
If a business’s fixed cost are large relative to its variable cost, it is likely to
A.
Be more profitable than a firm whose fixed costs are small relative to variable cost.
B.
Produce in stage III of the production function
C.
Produce durable goods rather than service
D.
Operate longer hours than a firm whose fixed cost are small relative to variable
cost
Profit is maximized when
A.
Marginal cost is less than marginal revenue
B.
Marginal cost is equal to marginal revenue
C.
Marginal cost is greater than marginal revenue
D.
Marginal cost is growing at the same rate as marginal revenue
What kinds of cost do you have
to consider?
• Fixed Cost – the cost that a business incurs
even if the plant idle and output is zero.
–
–
–
–
Salaries
Rent
Property Taxes
Variable Cost – cost that does change when the
business rate of operation or output changes
– Electric power
– Shipping charges
What kinds of cost do you have
to consider?
• Variable Cost – cost that does change
when the business rate of operation or
output changes
– Electric power
– Shipping charges
• Total Cost – Sum of the fixed and variable
costs
• Marginal Cost – Extra cost incurred when
a business produces one additional unity
of a product.
Figure 5.6
Applying Cost Principles
• Self-service Principles
– Gas station is an example of high fixed cost
with low variable cost
– Ration of variable to fixed cost is low
• E-Commerce
– An industry with low fixed cost
Measure of Revenue
• Total revenue =
– Number of units sold multiplied by the
average price per unit
• Marginal Revenue =
– The extra revenue connected with producing
and selling an additional unit
Marginal Analysis
• Marginal Analysis comparing the extra
benefits to the extra cost of a particular
decision
• Break-even point is the total output or total
product the business needs to sell in order
to cover its total cost
Marginal Analysis
• Businesses want
– # of workers and level of output that
generates max. profits
– Profit-maximizing: quantity of output is
reached when marginal cost and marginal
revenue are equal
Chapter 5 Section 3 Vocabulary
A.
B.
C.
D.
E.
Fixed cost
Variable cost
Marginal cost
Total revenue
E-commerce
1. Cost that a business incurs even if
the plant is idle and output is zero
2. Extra cost incurred when a business
produces one additional unit of
product
3. Cost that changes when the
business rate of operation or output
changes
4. Electronic business or exchange
conducted over the internet
5. The number of units sold multiplies
by the average price per unit
Jump Start Chapter 5 section 3
1.
2.
3.
4.
5.
Cost and benefit decision making that compares the extra benefits to the extra cost of
an action is called?
A.
Marginal revenue
B.
Marginal cost
C.
Marginal analysis
D.
Marginal output
The total cost of production is determined by
A.
Adding fixed cost and variable cost
B.
Adding marginal and fixed cost
C.
Multiplying fixed and variable cost
D.
Multiplying marginal and fixed cost
All of the following are examples of variable costs EXCEPT:
A.
Labor
B.
Freight
C.
Interest payments on bonds
D.
Electricity
If a business’s fixed cost are large relative to its variable cost, it is likely to
A.
Be more profitable than a firm whose fixed costs are small relative to variable cost.
B.
Produce in stage III of the production function
C.
Produce durable goods rather than service
D.
Operate longer hours than a firm whose fixed cost are small relative to variable
cost
Profit is maximized when
A.
Marginal cost is less than marginal revenue
B.
Marginal cost is equal to marginal revenue
C.
Marginal cost is greater than marginal revenue
D.
Marginal cost is growing at the same rate as marginal revenue