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Supply Ch. 5

Supply Ch. 5. Profit is the determining factor of supply. A business is only open as long as it can make a profit, except the government. (Think Postal Service) Profit = Total Revenue – Total Cost. Law of Supply . Profits are the motivation of people to start their own business.

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Supply Ch. 5

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  1. Supply Ch. 5

  2. Profit is the determining factor of supply. • A business is only open as long as it can make a profit, except the government. (Think Postal Service) • Profit = Total Revenue – Total Cost. Law of Supply

  3. Profits are the motivation of people to start their own business. • Without that motivation there is no free-market, open competition. • Only countries which practice this system have high standards of living for most of their citizens. Supply cont.

  4. Supply is defined by how much of a good a producer is “willing and able” to sell at a certain price. • The Law of Supply states that the quantity supplied is directly related to the price. • If the price drops below the “willing or able” point then the producer loses money or goes out of business, (except for the gov’t). Supply cont.

  5. Why are more producers willing to supply at higher prices? • Because they make more profits. • This supply curve line goes the opposite direction of the demand curve. • That’s because the consumer wants to pay the lowest price while the producer wants to sell for the highest price. • Where the 2 lines meet is called the price equilibrium. • Both parties will experience satisfaction when the equilibrium price is met. Supply curve

  6. Elasticity is the responsiveness of change a producer feels when the price goes up or down. • More producers are willing to produce when the price is high. • However, less consumers are willing to buy when the price is high. • Elasticity shows how much companies are going alter their production of goods. Elasticity of Supply

  7. 2 major determinants of supply. • 1. Marginal Costs- marginal means small, incremental. • If a product is much more expensive to make after a certain point, say 100 units, then the producer is not going to make more. • If the marginal cost is low after the first 100 units then the producer will make more to satisfy the profit motive. Determinants of Supply

  8. 2. Time- Length of time determines how elastic a producer is. • Over the short run a producer may not be very elastic, but just like Demand, over the long run supply gets more elastic. • This is because the supplier needs time to adjust to changes. • Ex. Mongolian Goats and Cashmere prices. Determinants of Supply

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