drill 9/17 determine if the following products are elastic or inelastic: 1. a goods changes its...
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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.
1. A goods changes its price from $4.50 to $5.85 and the demand for the good goes down 13%.
Drill Answer
Percent change in price
$5.85 - $4.50 = $1.35
$1.35 ÷ $4.50 =.3
.3 x 100 = 30
Calculating elasticity
13 ÷ 30 = .43
The good is inelastic.
Drill Answer
2. A goods price goes down 26% and the amount of the good demanded goes from 32 to 47.
Percent change in demand
47 - 32 = 15
15 ÷ 32 = .47
.47 x 100 = 47
Calculating elasticity
47 ÷ 26 = 1.807
The good is elastic.
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 changein price
$186 - $150 = $36
36 ÷ 186 = .194
.196 x 100 = 19.6
Calculating elasticity
25.8 ÷ 19.6 = 1.32
The good is elastic.
Percent changein demand
73 – 58 = 15
15 ÷ 58 = .258
.258 x 100 = 25.8
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
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
Supply Curve
$80
$60
$40
$20
01 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
PRICE
QUANTITY
$100
•
•
•
•
•
S1
Supply curves always slopes upwards to the right (direct relationship)
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
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?
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.
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
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.
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
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 costsMarginal cost The cost of producing one more unit of a good
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
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.
Government’s Influence on Supply
Subsidies = government payment that supports a business or marketExcise taxes = a tax on the production of a good for each unitRegulation = government intervention in a market that affects price, quantity, or quality of a good
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