SCHS SOCIAL STUDIES What you need to know UNIT TWO 1. Explain the law of supply 2. Explain how firms decide how much labor to hire to produce a certain level of output 3. Identify three was government can influence the supply of a good 4. Analyze the effects of other factors that affect supply Terms you should know Supply Law of Supply Quantity Supplied Supply Schedule Variable Market Supply Schedule Supply Curve Market Supply Curve Elasticity of Supply Marginal Product of Labor Increasing Marginal Revenue Fixed Cost Variable Cost Total Cost Marginal Cost Marginal Revenue Operating Cost Subsidy Excise Tax Regulation
5-1 Summary: Fill in the missing words. As the price of a good rises, firms will produce more to make more revenue. New firms will have an incentive to enter the market. The tendency of suppliers to offer more of a good at a higher price is called the. This law states that the higher the price, the larger the quantity produced. If the price of a good falls, less of a good will be produced. Some firms will produce less, and others might drop out of the market. A illustrates the quantity supplied by all producers in a market at different prices. For example, a market supply curve could show the quantity of pizza supplied by all the pizzerias in a city. A supply curve always rises from left to right. That is because higher prices lead to higher output. is a concept that predicts how suppliers react to price changes. Industries that cannot easily alter production have supply. Orange growers, for example, cannot increase production quickly when prices rise. They need to purchase more land and plant more trees in order to increase output. A service industry like a barbershop has supply. If the price of a haircut rises, barber shops and salons can hire new workers quickly. New barber shops will start, and existing businesses will stay open later. The supply curve shows the price of a slice of pizza affects output in a city s pizza market. LABEL AND COMPLETE THE FOLLOWING MARKET SUPPLY CURVE.
Supply the missing causes or effects on the line provided in the chart. Cause Effect 1. The price of pizza increases 1. On pizzerias: 2. The cost of tomato sauce increases along with the price of pizza 3. 4. 2. On pizza supply schedule: 3. On market supply curve: Prices will remain the same as on a single pizzeria s supply curve 4. On supply curve: The curve always rises from left to right. 5. The supply of a good is not very responsive to price changes 6. A supplier, such as an orange grower, has a long time to respond to a price change 5. On the value of elasticity of supply: 6. On supply:
5-2 Summary: Fill in the missing words. Economists divide a producer s costs into two different categories. A is a cost that does not change, no matter how much is produced. Examples of fixed costs include rent and machinery repairs. A is a cost that rises or falls depending on the quantity produced. These include the costs of raw materials and some labor. Fixed and variable costs are added together to find. Business can increase output by hiring more workers or purchasing more capital. The change in output from adding one more worker is the. At the beginning, adding each worker will result in. Workers will be able to specialize and gain skills. At some point, adding each worker will result in. Workers may need to wait to use a tool or machine. As more workers are added, there will eventually by. is the cost of producing one more unit of a good. is the revenue gained from producing one more unit of a good-usually, the price of a unit. When marginal cost is less than marginal revenue, a producer has an incentive to increase output, since it will earn a profit on the next unit purchased. When marginal cost is more than marginal revenue, a producer has an incentive to decrease output, since it will lose money on the next unit produced. That is why profits are maximized when marginal cost marginal revenue.
To maximize profits, businesses consider the marginal benefits of adding workers or purchasing capital. USING YOPUR BOOK, COMPLETE THE CHART BY SHOWING THE MARGINAL PRODUCT OF LABOR. Labor (Number of workers) Output (Beanbags per hour) Marginal Product of Labor 0 0 1 4 2 10 3 17 4 23 5 28 6 31 7 32 8 31
Supply the requested information in the spaces provided 1. A basic question a producer must answer: 2. Marginal product of labor benefits gained from worker specialization: 3. Negative effect of a firm s limited capital: 4. Curve pattern for marginal product of labor when capital is limited: 5. Examples of typical fixed costs: 6. Why labor is a variable cost: 7. How the marginal costs of production for the beanbag producer changed after the rate of three bags per hour was surpassed: 8. How total revenue and total cost can help set the most profitable output level: 9. How marginal revenue and marginal cost can help set the most profitable output level: 10. Why a producer would continue to increase output even though the marginal cost of production may be rising:
5-3 Summary: Fill in the missing words. Any change in the costs of inputs, like raw materials, machinery, or labor, will affect supply. A cost increase causes a fall in supply at all prices because the good has become more expensive to produce. Supply that falls at all prices can be shown as a shift to the of a supply curve. A fall in the cost of an input will cause an increase in at all levels. An increase in supply is shown by a shift to the of the supply curve. The government has the power to affect the supply of many goods. A is a government payment to support a business or market. Since the subsidy lowers producers costs, its effect is usually to increase supply. The government can also reduce the supply of some goods by placing a tax on them. An is a tax on the production or sale of a good, making it more expensive to produce., or steps the government takes to control production, may also affect supply. Another influence on supply is the producers. If sellers expect the price of a good to rise in the future, they will store goods now and sell more in the future. But if the price of the good is expected to drop, sellers will put more goods on the market immediately. In periods of, or rising prices, producers often try to hold on to goods, supply.
Many different forces are at work in the market place to change the supply of goods and services. FROM YOUR TEXTBOOK, LABEL THE FORCES THAT AFFECT SUPPLY Forces That Increase Supply Forces That Decrease Supply
Supply information to complete each statement in the spaces provided. 1. Unable to control price, a profitable producer faced with rising and/or materials costs will: 2. New technology affects supply by: 3. European governments reasons for subsidizing food producers include: 4. In the past, Western European governments subsidized banks and airlines by: 5. The United States government subsidizes such industries as: 6. An excise tax increases production costs by: 7. Consumers may be unaware of excise taxes because: 8. Government regulations often reduce supply because: 9. During periods of inflation, suppliers may temporarily withhold goods that can be stored for long periods because: