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Stephen Kelli

on 22 May 2011

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Transcript of Supply

What is Supply? Supply is the quantities of output that producers will bring to market at each and every price. Supply can be represented in a supply schedule, or graphically as a supply curve. The Law of Supply: Change in Qty. Supplied: A change in quantity supplied is represented by a movement along the supply curve. Change in Supply: A change in supply is the change in the quantity that will be supplied at each and every price. An increase in supply is represented graphically as a shift on the supply curve to the right. A decrease is a shift to the left. Changes in supply can be caused by a change in the cost of inputs, productivity, new technology, taxes, subsidies, expectations, gov’t regulations, and number of sellers. Productivity Technology Cost of Resources Taxes & Subsidies Expectations Government Regulations No. of Sellers Productivity goes up whenever more
output is produced using the same amount
of imput.
When it goes up, the supply curve shifts to the right, and when it declines the curve shifts to the left Introduction of new technology to a company, for example, would shift the supply curve to the left because it increases the company's efficiency to produce. The Law of Supply states that the quantities of an economic product offered for sale vary directly with its price. If prices are high, suppliers will offer more than if prices are less. This law is demonstrated in the supply schedule, which is a table that shows the quantity supplied at a particular price in the market
The visual representation of this is the supply curve which is basically a graph of this table. The Market supply curve: It shows the quantities offered at a particular price in the market except that unlike the supply curve, it shows the average of all firms. A change in the cost of productive inputs such as land, labor, and capital can cause a change in supply. Supply might increase because of a decrease in the cost of inputs such as labor or packaging. If the price of the inputs drops, producers are willing to produce more of a product, thereby shifting the supply curve to the right. An increase in the cost of inputs has the opposite effect. Taxes decrease supply because when firms pay taxes the cost of production goes up. Government subsidies on the other hand increase supply as it lowers the price of production. The expectation for future price change causes the supply to change as if the changes were already taking place. With tight government regulations the production cost goes up and decreases the supply of the product. The opposite of this is seen in relaxed government regulations. As more firms enter an industry, the supply curve shifts to the right because more products are offered for sale at the same prices as before. However, if some suppliers leave the market, fewer products are offered for sale at all possible prices. This causes supply to decrease, shifting the curve to the left. Supply Elasticity If the supply of a product increases and decreases proportionally to the price then the supply is elastic. if it doesn't then supply is inelastic.
Because it takes 10 min. to make a burger, the supply of burgers is elastic because it can be changed in a moments notice. The supplies of cows, however, is inelastic because it takes years to produce a adult cow. So if there's a change in demand it would take several years to adjust the supply, by which time it might no longer be necessary. What is Supply? The Theory of Production The Production Function Production is usually shown in the product function, which measures the effect of changing a single variable in the factors of production, usually labor. The Production Period Short Run: Variable input can be changed (labor).
Long Run: Contrasts to the short run in that, some factors are variable while others are fixed, and firms change production levels in response to (expected) economic profits or losses. The production function is based on a table called the production schedule; it outlines the total no. of workers and the total product produced by each worker (marginal product). Stages of Production There are there are three stages to the production schedule.
Stage 1: Consists of increasing marginal returns.
Stage 2: Consists of decreasing marginal returns.
Stage 3: Consists of decreased production.
*Profit maximization mostly occurs in Stage 2. Cost, Revenue, and Profit Maximization Measures of Cost Fixed costs Costs that don't depend on the level of goods or services that are produced.

Example: Salaries.
The payement of workers who recieve the same amount of money per month, despite the level of work they do Variable costs As opposed to fixed costs, they are axpenses that depend on the amount of production.

Example: Resturant.
When you open a resturant, the more food you require, the more money you will pay.
Labor is also a major source of variable costs because the more workers you have, the more you more money you'll have to pay. (Overhead) Total costs This is the sum of both the fixed costs and the variable costs

If a firm has a fixed cost of $200,000 and there are 20 workers, who each get $500, then the fixed cost is $204,000.

FC($200,000) + (20 x $500) = $204,000 Marginal cost This is the extra cost of producing one additional unit of production Applying Cost Principles E-Commerce E-Commerce is electronic business over the interet (ebay, Amazon, etc...)


- There is no need to spend alot of money for renting a building.
- Products can be promoted worldwide. Break-Even point This is the production level where total costs equal total revenue.
However, this just tells a firm how much it has to produce to cover all its expenditure.No profits are made here, so a firm would usually want to maximize its profit and expand. Marginal Analysis and Profit Maximization Businesses use two key measures of revenue to find the amount of output that will produce the greatest profits. The first is total revenue, and the second is marginal revenue. The marginal revenue is compared to marginal cost to find the optimal level of production. Total revenue - I'ts the total amount of money earned by a firm from the sale of its products.

TR = PxQ

For example, if a firm is selling skateboards for $15 each, and they sell a total of 400 skateboards, the total revenue is $6000. Marginal Revenue It's the extra revenue from the sale of an additional unit of output.

Change in TR/MP (will always be the same number). Marginal Analysis It's the desicion making that compares the extra cost of doing something to the extra benefit. If there is a benefit, then you can be sure that a firm will take that extra step.

For example, if adding an extra laborer will increase the total output, then the laborer will be hired. However, if the worker will keep the total output constant or decrease it then he/she won't be hired. Profit Maximization This is the most a firm can make. However, if the marginal cost exceeds the marginal revenue, then the firm is indeed losing money instead of making profit. Supply AbdelRahman Elemam
Stephen Kelli Works cited "Microeconomics - Short Run and Long Run Production." Tutor2u | Economics | Business Studies | Politics | Sociology | History | Law | Marketing | Accounting | Business Strategy. Web. 16 May 2011. <http://tutor2u.net/economics/revision-notes/a2-micro-shortrun-longrun-production.html>.

"Theory of Production (economics) -- Britannica Online Encyclopedia." Encyclopedia - Britannica Online Encyclopedia. Web. 16 May 2011. <http://www.britannica.com/EBchecked/topic/477991/theory-of-production>.

Clayton, Gary E. Glencoe Economics: Principles and Practices. New York, NY: McGraw-Hill/Glencoe, 2012. Print.
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