AP Microeconomics

1. AP Microeconomics A Producer’s Point of View

2. Chapter Three • The goal of firms is to supply enough products to cover production costs and also earn a profit. • Quantity Supplied: the amount of a product that a firm would be willing and able to offer for sale at a particular price.

3. Similar Sounding Terms • _______________: a table showing how much of a product firms will supply at different prices. • ______________: a graph illustrating how much of a product firms will supply at different prices. SUPPLY SCHEDULE SUPPLY CURVE

4. LET’S DO SOME GRAPHING • Follow the directions for the axis and graph the three supply schedules, then figure out the market supply schedule (but do not graph it).

5. Other Similar Terms • Law of Supply: The positive relationship between price and quantity of a good supplied: • An in price leads to an in q.s. • Market Supply: The sum of all that is supplied by all producers of a single product.

6. The price of pumpkins is the same for the three different farms. What are some reasons why the McGee Farm can offer more pumpkins than the Branson Farm? • Since their quantities offered are greater at all prices their entire supply curve is to the ___________________ of the Branson supply curve. RIGHT

7. The price of pumpkins is the same for the three different farms. What are some reasons why the Thompson Farm offers less pumpkins at all prices compared to the Branson Farm? • Since their quantities offered are less at all prices their entire supply curve is to the______________________ of the Branson supply curve. LEFT

8. Supply Rules to Live By: • When price increases, • the quantity supplied increases[∆ in quantity supplied] • When price decreases, • the quantity supplied decreases [∆ in quantity supplied]

9. Supply Rules to Live By: • When price stays the same but the quantities offered all increase, • the supply curve will shift right. [∆ in supply] • When price stays the same but the quantities offered all decrease, • the supply curve will shift left. [∆ in supply]

10. Reasons for Shifts in Supply 1. Cost of Production: • How much does it cost to make one output? • Changes in those costs have an impact on how effective and efficient production can be.

11. 1A. Cost of Inputs • Inputs, or “ingredients”, are the resources and factors of production used to create the outputs. • As the cost of inputs increase, supply will ________________ and the curve will shift __________________. • As the cost of inputs decrease, supply will _______________ and the curve will shift _________________. DECREASE LEFT INCREASE RIGHT

12. 1B. Productivity • This describes how efficient the labor force is in the manufacturing process. • The more motivated the workers are: supply will ________________ and the curve will shift __________________. • The more lazy and apathetic the workers are: supply will ________________ and the curve will shift __________________. INCREASE RIGHT DECREASE LEFT

13. 1C. Technology • The innovations and methods of product change as time progresses and machines evolve. • New methods of production and supply will ________________ and the curve will shift __________________. • When there is broken, outdate technology: supply will ________________ and the curve will shift __________________. INCREASE RIGHT DECREASE LEFT

14. 1D. Government Intervention • The U.S. is not a true laissez-faire economic system; the government does get involved with business – for the good of the whole. • Taxes are governmental charges on business. As taxes increase, supply will ________________ and the curve will shift __________________. • Subsidies are ways for government to financially help struggling businesses. As subsidies are offered supply will ________________ and the curve will shift __________________. • Laws and regulations can restrict business. As regulations tighten business supply will ________________ and the curve will shift __________________. DECREASE LEFT INCREASE RIGHT DECREASE LEFT

15. 2. Similar Resources • Resources can be utilized for multiple outputs; reallocating resources from one output to another can affect both. [Think the ppf, if resources are moved to increase the output of one product, the output of the other must be sacrificed.] • Ex) as corn is used more for ethanol, the supply for popcorn to eat will _____________________ and the supply curve will shift ___________________. DECREASE LEFT

16. 3. Number of Sellers • As more producers enter the market more supply of the product will be available. • As producers go out of business, less supply will be available.

17. 4. Changes in Expectations • Knowing what prices are in the future can affect how much a producer is willing to offer today. • As a producer, if I know prices will be higher in the future, I will _____________ supply now and the curve shifts ___________________. • As a producer, if I know prices will be lower in the future, I will ______________ supply now and the curve shifts ___________________. DECREASE LEFT INCREASE RIGHT

18. You will start each scenario with a graph and then write a sentence: Supply will ________, Due to ___________, this means that … Therefore the curve will shift __________. Scenarios S0 P Q