Chapter 4 copy
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Chapter 4 copy

Course Number: ENGLISH ?, Fall 2007

College/University: El Camino

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Economics Chapter 4 Section: 1 1. Vocabulary Supply- quantity of goods and services that producers are willing to offer at various possible prices during a given time period. Quantity supplied- the amount of a good or service that a producer is willing to sell at each particular price. Law of supply- states that producers supply more goods and services when they can sell them at higher prices and fewer goods and...

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Chapter Economics 4 Section: 1 1. Vocabulary Supply- quantity of goods and services that producers are willing to offer at various possible prices during a given time period. Quantity supplied- the amount of a good or service that a producer is willing to sell at each particular price. Law of supply- states that producers supply more goods and services when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices. Profit- The amount of money remaining after producers have paid all of their costs. Costs of production- the total cost of materials, labor, and other inputs required in the manufacture of a product. Supply schedule-too that shows the relationship between the price of a good or service and the quantity that producer will supply. Supply curve- plots on a graph the inf9ormation from a supply schedule. Elasticity of supply- the degree to which price changes affect the quantity supplied. Elastic supply- exists when a small change in price causes a major change in the quantity supplied. Inelastic supply- exists when a change in a good's price has little impact on the quantity supplied. 2. Q: How does the concept of supply differ from the quantity supplied? A: Supply is different than quantity supplied because the producer gives various amounts of an item produced to a buyer for various prices. These items are also sold during a specific time period or season such as winter, summer, or spring. Quantity supplied is the set amount of clothing supplied at a particular set price for each quantity. 3. Q: What is the law of supply? How does the profit motive help explain the law of supply? A: The law of supply states that producers will sell more goods and services when they can sell them at higher prices; producers will sell fewer goods and services when they sell them for less. The profit motive proves the theory of the law of supply because the more a consumer wants something the more of that product they will buy. This causes the prices to be raised for that particular item because it is desired and will sell. When there is an item that is not selling well the prices will be low and production will decrease. This happens because producers want to make a profit and if they make a great amount of an item people do not desire they will lose money. 4. Q: What is the difference between a supply schedule and a supply curve? A: Supply schedules are lists of each quantity of a certain product and for each quantity there is a specified price. An example would be a company selling two quantities of a product such as televisions. The supply schedule that was given to the buyer tells them that they can either get 3,000 televisions for three hundred dollars, or 2,450 televisions for two hundred and fifty dollars. A supply graph is different because instead of listing it plots information from the supply schedule onto a graph. The graph will show the possible combinations of prices and quantities for the item being produced. 5. Q: What types of products tend to have an elastic supply? What are the usual characteristics of products with an inelastic supply? A: Products that are made easily and do not take a lot of time to produce or elastic supply products. These products include: sports souvenirs, easily made T-shirts, posters, hats, or other inexpensively made products. Inelastic supply products take a lot of time, money and resources to produce. The resources are not always readily available. Inelastic supply can have fixed prices where the prices can go up but the quantity stays the same. 6. Q: Name at least two instances in which you supplied a good or service. Why were you willing to supply to supply these products? What "price" did you receive for these products? A: When I was a freshman in high school I use to sell all sorts of candy to my classmates. I would carry around my big plastic bag of Hershey bars, Butterfingers, Skittles, Peanut M&M's, Twix, and Kit Kat bars, and my favorite Reese's. I was willing to supply these products because they were in high demand and also I made a great amount of money. I often doubled or tripled the price of the candy bars, but everyone seemed to still want them. 7. Q: Identify three products with elastic supply and three products with inelastic supply. Explain your choice. A: Three products with elastic supply would be T-shirts, Dodger hats, or movie posters. These items have elasticity because they are easy to produce and there are many of these products available. They do not take a lot of time or care to produce which allows them to always be readily available when needed. Three products with inelasticity in California would currently be oranges, gold, and gasoline. These products have an increase in price but do not supply more in quantity. They all take time to grow, or to produce, and are scarce at this time. Oranges are scarce because California's orange fields were frozen over this winter and most of the crops were ruined. Therefore the prices went up because they are now scarce. Gold takes time to mine and purify, and gasoline prices continue to soar as our resources are limited. Section: 2 1. Vocabulary Determinants of supply- non price factors that can shift the entire supply curve of a product, instead of simply changing the quantity supplied along the original supply curve. Tax- required payment of money to the government to help fund government services. Subsidies- payments to private businesses. Regulations-rules government passes about how companies conduct business. 2. Q: How is a shift in supply curve different from a change in the quantity supplied? A: The change in quantity supplied always has to do with the price for each quantity. The higher the price the higher the quantity a buyer will receive. The supply shift is different. It shifts have nothing to do with the products price, which can also be called the determinants of supply factors. It shifts have to do with other factors that cause the quantity to either increase or decrease. 3. Q: Lists the determinants of supply and provide an example of each. A; The determinants of supply that cause the supply to shift left or right would be: 1. The prices of resources needed for the product. This would change the curve because depending on if the resources are scarce or not the prices will either increase or decrease while the quantity stays the same. Gasoline for instance goes up and down constantly but the quantity does not increase or decrease. 2. Government tools such as taxes decide whether business profits are high or low. If a business's tax is high then they will provide less of the product and make less of a profit. 3. Technology can effect the price of a product if a new chemical is discovered. It may enable a certain product to be made easier and be more efficient. This would cause a decrease in price and an increase in profit. 4. Competition between similar companies will create an increase in supply. This is because each company is trying to come out with the best new product or idea. Companies such as T-mobile and Verizon wireless are constantly trying to come out with better services such as reception in certain areas. They also try to provide customers with more desirable phones. 7. Prices of related goods can cause a growth in one product while it leaves other products decreasing in production. Whichever products prices are higher usually will be the most produced by companies. An example would be crops. If soybean crops are at a higher price and demand and corn is low then a farmer would choose to plant soybeans. 6. Producer expectations is when a producer expects a certain product to be desired in the future. Therefore a lot of the item is produced so that when the time or season comes the products will be readily available. An example would be snowboarding jackets. The bulk of them are only sold during the winter seasons, and the products were produced early because the season was going to come soon. 4. Q: How can taxes and subsidies affect supply? A: Taxes affect supply in a negative way. If the tax is high to producer a certain product then less profit will be made on the product. Therefore less of the product will be made. Subsidies are grants to businesses from the government to encourage producers to produce certain items or crops. This affects the supply in a positive way. If the prices have lowered for raw materials then the producer will make a greater profit and will produce more. 5. Q: imagine that you own a cookie shop in a mall. What resources should you monitor for price changes? What related goods might you want to track? A: If I owned a cookie shop I would monitor the price for chocolate and sugar and flour, eggs, and brown sugar. These are the most important resources in making my cookies. I would also track other stores that carried sweets around my store. I would change my prices to compete with them so that my profits would stay high. 6. Q: Describe an example of recent technological changes that affected a product's supply. How did this change the affect of the product supplied? A: The computer has caused there to be many changes in the way products and quantities are supplied. It has made it easier for people to seek out the products they need. The can look from their homes, business instead of traveling or going through mail to find what quantities or supplies they need. There are now websites of wholesalers or producers. This not only makes it easier to supply but easier for consumers to buy. Which makes profits increase. Section: 3 1. Vocabulary Total product- all of the product a company makes in a given period of time with a given amount of input. Marginal product- change of output generated adding by one more unit of input. Law of diminishing returns- describes the effect that varying the level of an input has on total and marginal product. Fixed costs-production costs that do not change as the level of output changes. Depreciation- lessening in value Overhead- the sum of a business's fixed costs except for wages and material costs. Variable costs- change the level of output changes. Total costs-the sum of fixed and variable production costs. Marginal costs- the additional costs of producing one or more unit of output. 2. Q: How does productivity influence supply decisions? A: Productivity influences supply decisions because the productivity is a way for a business to measure how much they can supply. If they put a certain amount of input they will receive a certain amount of output. They look at productivity to try and figure out how they can maximize and make their products more efficient. 3. Q: How do you determine what happens to productivity when a product's inputs change? A: To measure two things are taken into account the total product, which is the total amount of input put into production and then the marginal products which is the change of output generated by adding one more unit of input. Once these two are calculated a company is able to see the effect on output. 4. Q: What happens in each of the three stages of production? A: Stages of production: 1. Increasing marginal returns is when production rises due to the amount of workers in a company. Each worker provides a certain amount of units of input. The more workers the more product and specialization there will be. 2. Diminishing marginal returns is when the increase starts to diminish with more workers because there may not be enough machinery for the workers therefore the extra workers cannot produce as much. 3. Negative marginal returns is when the production level decreases even more due to too many workers. There may not be enough room in the Factory or production site for the new workers to even produce. 5. Q: What is the difference between fixed costs and variable costs? A: Fixed costs cannot change. These costs have nothing to do with how much is produced. These costs are rent of the company building, costs of machines, insurance, taxes and salaries. Variable costs change as the level of output changes. They include things such as raw materials, and wages. The amount of money used depends of the amount of raw material used that day, or the amount of products produced. 6. Q: Explain how the law of diminishing returns applies to a recipe for beef stew. Describe, in economic terms, what happens if you double, triple, or quadruple the amount of one of the same ingredients (input). Are the results the same if you quadruple the amount of beef as when you quadruple the amount of salt? What happens to the quality of the stew (output) in each instance? A: The law of diminishing returns applies to a recipe for beef stew because if a little bit of one recipe is added more than the others it will still taste how it is supposed to. If a large amount is added such as salt the dish will now taste too salty. The ingredients will not be evened out. The more you put ion the worse it gets and the more the taste of the beef stew is diminished. The quality is horrible. 7. Q: Imagine that you own a photo-processing business. What production issues must you consider to make your business a success? Explain how each issue would relate to your business. A: I must consider the machines needed for the photo processing. I will have to buy and replace new machines. I will also have to have the right amount of workers for my business. Too little and enough photo's will not be processed. If there are too many workers I will not have enough machines for all of them to produce the photos efficiently. Reviewing concepts 1. Q: Define the law of supply. Be sure to include how the profit motive relates to this law. A: The law of supply is when producers produce more goods and services when they sell them at higher prices and producers will producer less goods and services if they sell them at lower prices. This is because of profit motive. The producers want to make a profit on what they produce. If they cannot sell a lot of an item for a high price they will not produce as much of it because they will not make enough profit. 2. Q: Lists three goods or services supplied by your school. Use the economic definition of supply to justify your choices. A: My school provides food, books, and teachers. These are all only provided at a certain season. The school year is from February to June so they will only be provided during that time. The next semester different sorts of goods will be provided. 3. Q:Explain the difference between the following types of costs: fixed, variable, total, marginal. A: Fixed costs are things that do not have anything to do with the production of goods. They are things such as the rent for the company building, wages, insurance, etc. Variable costs are change as the level of output changes. Costs include raw material and wages. Total costs are the sum of both the fixed and variable costs. Marginal costs are the additional costs of producing one more unit of output. 4. Q: What determinants can cause a shift in supply? Give examples of at least three of these factors at work for a company that manufactures televisions. A: Technology can cause a shift in the supply curve because it can effect how the television is made. It could be made more efficiently with the new technology. Competition would cause television companies to try to come out with better products and produce more than other companies. Prices of related goods also would determine how much their television sets would sell for or how much profit they would be able to make. 5. Explain what happens in the three stages of production described by the law of diminishing returns. A: In the first stage of production the production, Increasing marginal returns, production will increase due to the efficiency input of all the workers. In the second stage, diminishing marginal returns, the production starts to decrease with new workers because they may not have the proper materials to carry out their jobs. The input lowers. In the third stage, negative marginal returns, the total production decreases and the old workers are affected. There may not be enough room in the factory to carry out production due to too many workers in the company. Thinking and Writing 1. Q: Determine whether supply for the following products is elastic or inelastic: candy, diamonds, submarines, and election campaign buttons. Explain your reasoning. A: Candy and election campaign buttons are examples of elastic supply products. That is because these objects are extremely easy to produce and the resources are not scare. Election campaign buttons are items mass produced and are only used for a short period of time. They are not considered valuable and are usually discarded after a short period of time. Candy is also another item that is produced everywhere by many different companies. It does not take a long time to produce them and they are readily available everywhere. Diamonds and submarines are a little more difficult to produce therefore they are considered inelastic supply products. These items are not readily available everywhere. Diamonds take time and care to find and to cut perfectly. It takes time to produce because time and care is the biggest part of producing a diamond. They are not readily available or mass produced everywhere. Diamonds can also increase in price without the quantity increasing because they are scarce. The same goes for submarines, which are not readily available. It takes a great amount of time and energy to get the metal and welding materials to make a submarine. The resources are scarce. Chapter 4 Test True or false 1. A supply curve lists each quantity of a product that product that producers are willing to supply at various market prices. 2. Products with elastic supply include gold, diamonds, and gasoline. 3. Determinants of supply are also known as non price factors. 4. Competition between businesses tends to decrease supply, while lack of competition tends to increase supply. 5. Changes in a products price can affect the supply for the products related goods. Multiple choice 6. Which one is not a determinant of supply? A. Competition B. Technology C. Quantity supplied D. Producer expectations 7. Payments to private businesses by the government are A. regulations B. variable costs C. subsidies D. elastic supply 8. An example of a variable cost would be A. rent B. raw materials C. insurance premiums D. salaries 9. A business makes a profit when revenues are greater than A. costs of production B. supply schedules C. depreciation D. marginal product 10. The change in the output generated by adding one more unit of input is A. Total product B. Marginal product C. Law of diminishing returns D. Subsidies Fill in the blank 11. All of the product a company makes in a give period of time, with a given amount of input is called a______________. 12. The lessening of value of a good is called ____________. 13. A product that requires a great deal of time, money and scarce recourses are known as _____________. 14. ______ is a required payment of money to the government to help fund government services. 15. The law of diminishing returns states that as more of one input is added to a fixed supply of other resources, _______________increases up to a point. ANSWER KEY 1. False, supply schedule 2. False, inelastic 3. True 4. False increase, decrease 5. True 6. C 7. C 8. B 9. A 10. B 11. Total product 12. Depreciation 13. Inelastic supply 14. Tax 15. productivity

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