Drill 9/17

1. Drill 9/17 • Determine if the following products are elastic or inelastic: • 1. A goods changes its price from $4.50 to $5.85 and the demand for the good goes down 13%. • 2. A goods price goes down 26% and the amount of the good demanded goes from 32 to 47. • 3. Consumers demand for a product goes from 58 units bought to 73 units bought when the store lowered the price from $186 to $150.

2. Drill Answer • 1. A goods changes its price from $4.50 to $5.85 and the demand for the good goes down 13%. Calculating elasticity Percent change in price $5.85 - $4.50 = $1.35 13 ÷ 30 = .43 The good is inelastic. $1.35 ÷ $4.50 =.3 .3 x 100 = 30

3. Drill Answer • 2. A goods price goes down 26% and the amount of the good demanded goes from 32 to 47. Calculating elasticity Percent change in demand 47 - 32 = 15 47 ÷ 26 = 1.807 The good is elastic. 15 ÷ 32 = .47 .47 x 100 = 47

4. Drill Answer • 3. Consumers demand for a product goes from 58 units bought to 73 units bought when the store lowered the price from $186 to $150. Percent change in price Percent change in demand Calculating elasticity 25.8 ÷ 19.6 = 1.32 $186 - $150 = $36 73 – 58 = 15 36 ÷ 186 = .194 The good is elastic. 15 ÷ 58 = .258 .196 x 100 = 19.6 .258 x 100 = 25.8

5. 1. What is a supply schedule? • 2. What is the law of supply? • 3.What causes supply to change?

6. The Law of Supply • The Law of Supply = the higher the price, the larger quantity produced and the lower the price, the smaller quantity produced • Higher Production – existing firms produce more to gain a greater profit • Market entry – new firms will enter the market because of the greater profitability of the good

7. Supply Schedule • Supply schedule = a table that lists the quantity of a good that a producer will supply at each price in the market • Market supply schedule = shows the quantities supplied by all producers in the market

8. Supply Schedule

9. Supply Curve PRICE • $100 S1 $80 • • $60 Supply curves always slopes upwards to the right (direct relationship) $40 • • $20 QUANTITY 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

10. Costs of Production

11. Labor and Output • Labor costs money so each worker must be worth the money that is paid • Producers measure the marginal product of labor • The change in output from hiring one or more workers

12. Drill 9/18 • 1. What is the law of supply? • 2. What type of relationship is the law of supply? • 3. What is a supply schedule?

13. Marginal Product of Labor Worker 1 Output 4 beanbags per hour MPL = 4 Worker 2 Output 10 beanbags per hour MPL = 6 Worker 3 Output 17 beanbags per hour MPL = 7 Increasing Marginal returns – A level of production in which the marginal product of labor increases as the number of workers increases.

14. 1) The Law of Supply = the higher the price, the larger quantity produced and the lower the price, the smaller quantity produced • 2) Direct Relationship • 3) Supply schedule = a table that lists the quantity of a good that a producer will supply at each price in the market

15. Marginal Product of Labor Worker 1 Output 4 beanbags per hour MPL = 4 Worker 2 Output 10 beanbags per hour MPL = 6 Worker 3 Output 17 beanbags per hour MPL = 7 Worker 4 Output 23 beanbags per hour MPL = 6 Worker 5 Output 28 beanbags per hour MPL = 5 Worker 6 Output 31 beanbags per hour MPL = 3 Diminishing Marginal Returns – A level of production in which the marginal product of labor decreases as the number of workers increase.

16. Marginal Product of Labor Worker 1 Output 4 beanbags per hour MPL = 4 Worker 2 Output 10 beanbags per hour MPL = 6 Worker 3 Output 17 beanbags per hour MPL = 7 Worker 4 Output 23 beanbags per hour MPL = 6 Worker 5 Output 28 beanbags per hour MPL = 5 Worker 6 Output 31 beanbags per hour MPL = 3 Worker 7 Output 30 beanbags per hour MPL = -1

17. Marginal Product of Labor NEGATIVE MARGINAL RETURN

18. Production Costs • Fixed Costs • A cost that does not change, no matter how much of a good is produced • Variable Cost • A cost that rises or falls depending on how much of a product is produced • Total costs = fixed costs + variable costs • Marginal cost • The cost of producing one more unit of a good

19. Changes in Supply

20. Input Costs • A rise in the cost of the factors of production will result in a rise in costs as a whole for the firm so they will cut production • Shift to the left • Advances in technology can lower production costs causing an increase in production • Shift to the right

21. Setting Output • Producers look for the optimum amount of output to maximize their profit • Not necessarily the most output • The optimum output is found when marginal costs equal the market price.

22. Government’s Influence on Supply • Subsidies = government payment that supports a business or market • Excise taxes = a tax on the production of a good for each unit • Regulation = government intervention in a market that affects price, quantity, or quality of a good

23. Other Factors • Supply in the global economy • Future expectations of prices • Number of Suppliers

24. What happens when you are producing to a point where your marginal costs equal the marginal revenue (market price) but the factory is still losing money? • SHUT DOWN • If the total revenue is greater than the cost of keeping it open (variable costs) do not shut down

25. Understanding Supply Supply = the amount of goods available

26. Drill # • 1. What is the marginal product of labor? • 2. What are decreasing marginal returns? • 3. What is a marginal cost?