COPY THESE NOTES
REVIEW CHANGES
IN DEMAND: PRICE
GOES UP… DEMAND GOES DOWN
CHANGES IN SUPPLY
·
LAW OF
SUPPLY
o PRICES GOES UP
SUPPLY GOES UP
o PRICES GO DOWN SUPPLY
WILL GO DOWN
Profit gets bigger and bigger
(Profit Up) you will supply more of the product (Supply Up)
Profit gets smaller (Profit
Down)… you will supply less of a product (Supply Down)
·
PROFIT
MOTIVE
The
desire to make money
ELASTICITY OF SUPPLY
·
ELASTIC
SUPPLY
Supply
changes
·
INELASTIC
SUPPLY
Supply
does not change
3
FACTORS THAT EFFECT ELASTICITY
1.
SPEED: How fast
can we make more of the product?
2.
COST: How
expensive it is to make that product?
3.
RESOURCES:
The resources that are available to make the product.
YOU
MUST HAVE ALL THREE TO BE ELASTIC… If you only have Two or one you are
INELASTIC.
EXAMPLE: Remember his example of making shirts after a
bowl game.
DETERMINANTS OF SUPPLY
Things
other than price that will affect supply
The
resources that go into making the product
·
PRICES
OF RESOURCES
o If the
price of resources changes… it will change the profit margin…
§ Profit
margin gets bigger, supply goes up.
§ Profit
margin gets smaller, supply goes down.
·
GOVERNMENT
TOOLS (what the government can do)
TAXES
Government
can tax your product
o If
taxes go up, supply goes down
o If
taxes go down, supply goes up
SUBSIDIES
Government
payment to a businesses to help lower their cost of production
Example: Exxon is given subsidies to do research to find
alternatives to use in oil and gas. If government gives a business a subsidy
then supply will go up.
REGULATIONS
Laws
and rules passed by the government and that are put on a company
Example:
Valero Smoke Stakes and having to put a filter in…
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