What Affects Supply Section 2-4

Costs of Production/What Affects Supply? Guided Reading/16 Points Directions: Read Chapter 5 Sections 2, 3 & 4. Respond to the following prompts about the reading. Section 2 What is marginal product? Change in total output brought about by adding one more worker What is specialization? Having a worker focused on a particular aspect of production. What are some different problems a business might face if it has too few or too many workers? Too few: resources are not used to full capacity/cannot produce as much as it could Too many: workers get in each other's way, not enough work to keep them busy. How are the stages of production related to total and marginal product? Define diminishing returns. Occurs when hiring new workers causes marginal product to decrease. On the bottom of page 139, why do Jane's increasing returns peak with six employees? Because there are 6 tasks involved in production in her factory, so each worker has one specialized task. Define the following: Fixed Costs: costs that business owners have no matter how much they produce. Variable Costs: costs that vary with the level of production output. Total Cost: Fixed Costs + Variable Costs Marginal Cost: Additional cost of adding one more unit of that product. Does change in the number of workers affect fixed costs or variable costs? Variable costs, because the number of workers varies with the amount of output. How do changes in variable costs relate to the slope of the supply curve? Since variable costs increase as Qs increases, a producer will only supply more product if he or she can charge higher prices to cover the costs. Section 3 Differentiate between change in quantity supplied and change in supply of a good or service. Change in Qs is an increase or decrease in the amount of a good or service that producers are willing to sell because of a change in price.   Change in supply is an increase or decrease in the amount of a good or service that producers are willing to sell because of a change in price.   What happens to supply when production costs increase? Supply decreases. 11. What happens to a supply curve when a change in supply occurs? * It shifts to the left or right based on an increase or decrease in Qs at every price. 12. List and describe the six factors that cause a change in supply. a. Input prices (Price of resources used to make products) * If costs decrease, supply shifts right. * If costs increase, supply shifts left. b. Labor productivity - Amount of goods a worker can produce in a given time. * Increasing productivity decreases costs and increases supply. c. Technology - Better technology increases production. * Decreases costs and increases supply. d. Government action - Excise tax (alcohol/tobacco) → price of commodity increases → supply decreases. e. Producer Expectations - If a producer expects the price of a commodity to be higher in the future, he may store some production → decrease in supply. f. # of Producers - More producers enter the market → supply shifts right. * Fewer producers exit the market → supply shifts left. 13. A new battery for electric cars has been introduced. It will allow a car to go 100 miles farther than the current batteries.   a. Where will the supply curve for electric cars shift? * Shift right b. This indicates an increase or decrease in supply. * Increase in supply 14. The government has placed a tax on the purchase of all high sugar soft drinks. a. Where will the supply curve for high sugar soft drinks   shift? * Left b. This indicates an increase or decrease in supply (Right or Left) * Decrease 15. What is elasticity of supply? How is elasticity related to the law of supply? * Responsiveness of producers to a change in market price. a. What is the difference between industries that have elastic supply and those that have inelastic supply?