3-4Supply - Supply Individuals control the factors of...

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Supply Chapter 3-4 Supply • Individuals control the factors of production – inputs, or resources, necessary to produce goods. • Individuals supply factors of production to intermediaries or firms. Supply • The analysis of the supply of produced goods has two parts: – An analysis of the supply of the factors of production to households and firms. – An analysis of why firms transform those factors of production into usable goods and services. The Law of Supply • There is a direct relationship between price and quantity supplied. – Quantity supplied rises as price rises, other things constant. – Quantity supplied falls as price falls, other things constant. Law of Supply Law of Supply – As the price of a product rises, producers will be willing to supply more. – The height of the supply curve at any quantity shows the minimum price necessary to induce producers to supply that next unit to market. – The height of the supply curve at any quantity also shows the opportunity cost of producing the next unit of the good. The Law of Supply • The law of supply is accounted for by two factors: – When prices rise, firms substitute production of one good for another. – Assuming firms’ costs are constant, a
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This note was uploaded on 01/01/2011 for the course ECON 101 taught by Professor E during the Spring '10 term at American College of Computer & Information Sciences.

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3-4Supply - Supply Individuals control the factors of...

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