Chapter 7
Supply:
Producing Goods and Services
I.
Supply
for the Individual Firm
In our economy,
people produce goods and services to gain certain benefits. These benefits can include economic income
or psychic income.
Supply – is the
quantities of a product or service that a firm is willing and able to make
available for sale at different prices.
Supply Schedule – is a table that
shows the quantities of a good or service that would be supplied by a firm at
given prices.
Supply Curves – is a graphic representation
of the quantities that would be supplied at each price.
|
Price |
Quantity Supplied |
|
$1.50 |
50 |
|
$2.00 |
150 |
|
$2.50 |
200 |
|
$3.00 |
400 |
|
$3.50 |
600 |
|
$4.00 |
800 |
The Law of Supply – states that the quantity of goods
supplied will be greater at a higher price than it will at a lower price.
*Firms are willing to supply more
units if the price goes up.
Changes in Supply – means a change in the number of
units supplied at every price. An
increase in supply means more units will be supplied at each price.
What causes a change in
supply? changes in
supply can be caused by a number of factors.
The two most common causes are technological change and a change in the
cost of inputs.
Technological changes typically increase productivity and
lowers the costs of production. If the costs of production are lower, firms can
sell more output at any given level.
Costs of Inputs – inputs can be changes in wages, raw
materials, energy, rent, or any factor of production used in the
production process.
II.
Producing
Goods and Services
Production is what makes it possible
to meet consumer demand. Self interest
is what fuels the economy. As with most
other things working involves opportunity costs.
What are some of your opportunity
costs of producing/working for a company?
To make up for those opportunity
costs, we must get some benefits from working.
The Four Factors of
Production – anything
used to produce a good or a service.
¨ Natural
Resources – consist
of all of the natural resources which are used to create a product. Examples include: natural gas, water, sand,
steel, etc…
¨ Labor – represents the human factor that is
involved in the production process.
¨ Capital
– includes all of the
machinery, money and equipment used to produce a product or a service.
¨ Entrepreneurship
– includes the
managerial ability and risk taking that contribute so much to a productive
economy.
Shifts
in the Supply Curve
