Chapter 5: Supply Vocabulary

Name: Period: Chapter 5: Supply Vocabulary

1. Supply

2. Input

3. Output

4. Supply schedule

5. Supply curve

6. Market supply schedule

7. Market supply curve

8. Law of Supply

9. Direct Relationship

10. Production Costs

A) Fixed costs

B) Variable costs

C) Operating costs

D) Total costs

E) Marginal costs

8. Marginal Product of Labor

A) Increasing Marginal Returns

B) Diminishing Marginal Returns

C) Negative Marginal Returns Page 2 9. A firm’s Basic Goal

10. Profit

11. Total Revenue

12. Marginal Revenue

13. The Ideal level of Output

14. Government’s Influence on Supply

A) Subsidy

B) Excise Tax

C) Regulation

STANDARDS: 6.2.12 EFK; 6.3.12 A-F; 6.4.12DE; 6.5.12 ABDF WEBSITES: http://ecedweb.unomaha.edu/Dem_Sup/supply.htm (Explain supply) http://www.investopedia.com/university/economics/economics3.asp (Explain supply) http://www.lemonadestandgame.com (Lemonade stand game) http://ingrimayne.com/econ//DemandSupply/OverviewSD.html (Explains supply, plus quiz) Page 3 15. Differences between… Cause(s) Price Quantity Ceteris Paribus:

Result

Called:

Increase in Quantity Supplied: Increase in Supply

Decrease in Quantity Supplied: Decrease in Supply

Name: Page 4 Chapter 5: The Law of Supply

Multiple Choice Word Problem 1. In a market economy, the amount of a good that is produced is decided by the interaction of 7. Felix is a wheat farmer who has two fields he A) buyers and sellers can use to grow wheat. The first field is right B) producers and input suppliers next to his house and the top soil is rich and C) all consumers thick. The second field is 10 miles away in the D) all producers mountains and the soil is rocky. On which field do you think the opportunity cost of producing 2. According to the law of supply, when the price wheat is the highest? Why? of a good increases, we would predict that A) more will be consumed B) more will be produced C) less will be produced D) less will be consumed Graphing 3. When the price people are willing to pay for oil decreases, what would we predict would 8. Below is the supply schedule for Rolling Rock happen to the amount of oil produced in any oil Oil Co. Plot Rolling Rock’s supply curve on field? the chart below. A) It would decline B) It would increase Price Quantity Supplied C) It would stay the same (dollars per barrel) (barrels per month) D) It would fluctuate up and down $5 10,000 10 15,000 4. To produce more wheat, Farmer Jones has to 15 20,000 use fields that are on a mountain slope, where it 20 25,000 costs $500 more to grow each ton of wheat. 25 30,000 Farmer Jones would only produce from these fields when 30 A) The price of wheat increases B) The cost of wheat increases 25 C) The price of wheat decreases P D) The cost of wheat decreases R 20 I 5. John and Kate decide that coffee would be a C 15 good business to be in, so they form J&K E Coffee Co. What will happen to the market ($) 10 supply of coffee as a result? A) It will decrease 5 B) It will increase C) It won’t change 0 D) It only changes the price 5 10 15 20 25 30 35 40

6. When we add up all of the individual firm QUANTITY supply curves, what do we have? (In thousands) A) nothing important B) the individual supply curve C) the market supply curve D) the amount produced Page 5 Name: Chapter 5: The Supply Curve / Movement of Supply

Section A: Directions: Use the following choices to complete the below questions.

A) Increase in Quantity Supplied B) Decrease in Quantity Supplied C) Neither of the Above

1. _____ Occurs because quantity decreases. 5. _____ 7. _____

2. _____ Occurs because price decreases.

3. _____ Occurs because price increases.

4. _____ Occurs because quantity increases. 6. _____ 8. _____

Section B: Write True or False on the line to the left. If the answer is FALSE, change it to make it TRUE!

9. ______The price of pizza increases, therefore the quantity supplied decreases.

10. ______The quantity of shirts decreases, therefore the quantity supplied increases.

11. ______A direct relationship between two variables means they move in opposite directions.

12. ______The price of oranges decreases, therefore nothing happens to quantity supplied.

13. ______A market supply curve is constructed by the horizontal summing of many firms’

supply curves.

14. ______Without a change in technology or input prices, opportunity costs of production increase as more are produced.

15. ______Price and Quantity supplied have an inverse relationship.

16. ______If price increases, there will be a movement to the right on the supply curve.

17. ______If price decreases, there will be a shift to the left on the supply curve. Page 6 Name: Chapter 5: Movement and Shifts of Supply

Multiple Choice: (Directions: Use the following choices to complete the below questions 1-10)

A) Increase in Quantity Supplied B) Decrease in Quantity Supplied 7. _____ C) Increase in Supply D) Decrease in Supply

1. _____ Occurs because quantity is supplied more. 8. _____

2. _____ Occurs because price increases.

3. _____ Called a “shift to the right”

4. _____ A result of supplying less of a product. 9. _____

5. _____ Happens because price decreases.

6. _____ Considered a “shift to the left”

Multiple Choice 10. _____

1. The difference between a change in quantity supplied and a change in supply is that a change in A) the quantity supplied is caused by a change in a good’s own-price, while a change in supply is caused by a change in a variable such as input prices, prices of related goods, expectations, or taxes. B) Supply is caused by a change in a good’s own-price, while a change in the quantity supplied is caused by a change in a variable such a input prices, prices of related goods, expectations, or taxes. C) The quantity supplied is a change in the amount people want to sell. A change in supply is a change in the amount they actually sell. D) Supply and a change in the quantity supplied are the same thing.

2. Which of the following will not cause a change in the supply of a product? A) a change in the price of suppliers inputs B) a change in the price of related products C) a change in the price of the product D) a change in the expected future price of the product Page 7 Name: Chapter 5: Supply Shifts

When other factors remain the same, price change results in a movement along the supply curve; this is called a(n) change in______supplied. When the other important factors (except price) that effect supplier behavior change (aka: quantity), the entire supply curve ______. A change of quantity will cause suppliers to change the amount they produce at any price; this is called a change in ______. The variables that shift the supply curve can be recalled by using the memory device ______.

“S” Variable Labor, materials, energy, and natural resources are examples of supplier ______.

An increase in supplier input prices (other things being equal) will make each unit of the good more costly to produce. Such a change will cause each supplier to offer ______goods for sale at any price; as a result, the supply curve will shift to the ______.

“P” Variable Like demand, the “P” variable includes goods that can be bought and used together, called ______and goods that can be used in place of each other, called

______. An increase in the price of a substitute will ______the supply of the original product. A decrease in the price of a complement will

______the supply of the original product.

Example: Coca-Cola Company owns the soft-drinks Sprite and Coke and the restaurant Burger King. If the price of Sprite decreases, the supply of Coke will

______. Most people eat a Whopper with Coke. If the price of a Whopper increases, the supply of Coke will ______. Show this on Graph C. Graph C Page 8 “E” Variable If suppliers expect the price of a good will be higher in the future, they will sell______now so that they will have ______to sell in the future. If studies have shown people feel better when they do something, companies will supply

______now.

Example: If the price of Coke will be on sale next week, Coca-Cola Company will sell ______cans of Coke now. If studies determine Coke will make people ill, the Company will supply ______of Coke. Show this on

Graph D. Graph D

“N” Variable The amount of businesses is referred to as the ______.

Example: Throughout the 1990s, we have seen a number of new firms enter the personal computer business. This has had the effect of ______the supply of personal computers.

“T” Variable The T in SPENT reflects the impact of innovation, government, and nature on supply.

The four components of T are ______, ______, ______, and

______. The introduction of new technology in the steel and shifted the supply curve to the ______. Good or normal weather will cause a(n)

______in supply. The implementation of government regulations, called ______or the introduction of

______will cause the supply curve to shift to the

______. Show this on Graph E.

Graph E Page 9 Name: Chapter 5: Shifts in the Supply Curve

True or False 9. El Nino has caused both drought and flood- 1. Ceteris paribus, if the price of timber producing rains in various wheat-growing increases, we would expect an increase in regions. What would be the likely affect of the supply of lumber. El Nino on the wheat market? A) an increase in supply 2. Ceteris paribus, a change in a good’s own- B) a decrease in supply price will result in a change in the quantity C) El Nino will not affect supply. supplied of the good. D) A decrease in demand

3. An increase in the number of suppliers 10. Which of the following actions of selling a product will result in a decrease in government would not result in a decrease the supply of the product. in the supply of fast-food meals? A) an increase in the minimum wage that 4. When the price of cotton falls, the supply of raises the wages of most workers in the barley, which can be grown using the same fast-food industry land, will increase. B) increased health standards governing fast-food kitchens 5. Midge point sells Persian carpets in the C) decreased property taxes on fast-food United States. If she expects the price of outlets these carpets will rise next year, she will D) worker safety regulations requiring that increase this year’s supply and sell more lettuce be chopped with a dull knife now rather then waiting to sell her stock next year. 11. Pan Am Airlines went bankrupt in 1998 and left the airline industry. What is the likely 6. Improving technology in an industry effect of this change on the airline market? usually lowers the cost of producing the A) an increase in supply product and results in a leftward shift in the B) a decrease in supply supply curve. C) no change in supply D) an increase in demand 7. Government can decrease the supply of a product by imposing taxes or regulations 12. Steel producers offer to sell sheet steel to that increase the cost of production. U.S. auto producers for a lower price than in the past. With all other factors remaining Multiple Choice constant, what would you expect to happen in the auto market? A) An increase in supply 8. SPENT is a memory device that stands for B) A decrease in supply A) shifting, prices, earnings, natural C) No change in supply resources, taxes. D) An increase in demand B) Suppliers input prices, prices of related goods, expectations, number of suppliers, and four T’s. C) Supply, price, equal, normal, tastes. D) Silly putty equals a nice time. Page 10 Name: Chapter 5: Shifts of the Supply Curve—1

1. On the graphs below, show the effects of each of the following on the supply for salsa in Northampton, PA. Identify the responsible SPENT variable in the space provided.

A. The price of Tomatoes skyrocket. D. The amount of suppliers decreases.

SPENT variable: ______SPENT variable: ______

B. Congress places a 26% tax on salsa. E. Ed Scissorhand introduces a new, faster vegetable chopper. SPENT variable: ______SPENT variable: ______

C. There is a drought were vegetables to make F. There is a new tax placed on salsa the salsa is located SPENT variable: ______SPENT variable: ______Page 11 Name: Chapter 5: Shifts of the Supply Curve—2

2. On the graphs below, show the effects of each of the following on the supply for coffee in Northampton, PA. Identify the responsible SPENT variable in the space provided.

A. The price of tea has decreased in recent years. D. There has been abnormally warm weather were coffee beans are grown. SPENT variable: ______SPENT variable: ______

B. Maxwell House has just announced their plan E. There are new regulations placed on to stop selling coffee beans. Coffee.

C. The price of donuts (eaten with coffee) F. People expect the price of coffee to has just increased. increase.

SPENT variable: ______SPENT variable: ______Page 12 Name: Chapter 5: Shifts of the Supply Curve—3

3. On the graphs below, show the effects of each of the following on the supply for chocolate chip cookies in Northampton, PA. Identify the responsible SPENT variable in the space provided.

A. The price of chocolate chip cookies is D. Technology has increased, allowing Expected to increase. more cookies to be made.

B. The price of milk has increased. E. The price of chocolate chips increases.

C. Krums is a new maker of chocolate chip F. People usually get sick after eating cookies. chocolate chip cookies.

SPENT variable: ______SPENT variable: ______Page 13 Page 14 Name: Chapter 5: Shifts of the Supply Curve—4

4. On the graphs below, show the effects of each of the following on the supply for hamburger in Northampton, PA. Identify the responsible SPENT variable in the space provided.

A. The price of chicken falls. D. The amount of suppliers increases

B. The price of hamburger buns doubles. E. Workers in Hamburger factories get a pay increase. SPENT variable: ______SPENT variable: ______

C. Scientists find that eating hamburger F. People expect the price of hamburgers prolongs life. to increase next year.

SPENT variable: ______SPENT variable: ______Page 15

Name: Chapter 5: Shifts and Movement Together

The graph below shows different effects on the supply curves for APPLES in the U.S. A) If the scenario involves a shift, write “S”; if the scenario involves a movement, write “M”.

B) Write the correct NEW point that would result in a movement or a shift. (The original point is ALWAYS “X”)

C) Then, write the responsible SPENT, if applicable.

Scenario Shift (S) or New SPENT Movement (M) Point variable 1. The price of apples has increased.

2. There is a drought where apples are grown.

3. The price of apples is expected to increase.

4. There is a new supplier of apples.

5. Apples make people live longer.

6. The price of apples decreases.

7. There are increased regulations on apples.

8. The price of oranges has increased.

9. The price of cheese—eaten with apples— has increased.

10. Apple tax has increased. Page 16 Page 17 Name: Chapter 5: Supply Costs

The amount suppliers charge to consumers is called ______, whereas the amount it takes a supplier to make something is called ______. Costs that stay relatively the same, such as paying for rent or salaries of managers are referred to as ______costs. Costs that fluctuate, such as paying the wage for a part-time employee for a seasonal position at Blue Mountain, are called

______costs. Fixed and variable costs can also included ______costs, which are the amount it takes to run a facility—including the wages of all employees and paying for the electric. When you add fixed and variable costs (which already include the operational costs), the result is the ______costs. When a company is determining the cost of producing one more unit of a good, this is referred to as the ______costs.

The change in output from hiring one more person is called the ______product of labor. For example, if a worker can generally make 10 jeans per hour, and you have 2 people working, how many jeans could your company produce? ______. When you hire one more person, generally, you want to ______your output—this is referred to as ______marginal returns.

Using the above example, if you added a 3rd person and each person was now only able to make 9 jeans per hour, what is the total jeans per hour your company could produce? ______Although the output with a 3rd person is greater than it was only 2 people, each person is making less per hour; this is called ______marginal product of labor.

Businesses are extremely careful when hiring individuals because they do not want

______marginal returns to occur—when they hire too many people and everyone gets in the way of each other. For example, if you would hire a 4th person, each person may only be able to produce 3 jeans per hour. How many total jeans could they produce? ______Page 18 Multiplying the quantity sold by the amount sold will equal ______. For example, if you sold 10 bottles of water (quantity), each for $2 a bottle, what is your total revenue? _____

A firm’s basic goal is to maximize ______. At a very minimum, you want your

______and ______to be the same—anything more is profit.

In order to determine profit, you would use the equation ______minus

______. If your total revenue for sneakers was $30 and your cost was $10, what would your profit be? ______. Businesses also determine how much more they would “bring into their business” by selling one more unit of a product by calculating the ______.

Chart Directions: Write the to the letters in the table in the spaces provided below.

Beanbags Fixed Variable Total Marginal Total Profit (per hour) Costs Costs Costs Costs Revenue 0 $36 $0 $36 -- $0 $-36 AAA EEE 44 $8 24 KKK 2 CCC 12 GGG 4 48 0 BBB 15 51 3 III 21 4 DDD 20 HHH 5 96 LLL 5 FFF 63 7 JJJ 57

A ____ H ____

B ____ I ____

C ____ J ____

D ____ K ____

E ____ L ____

F ____

G ____ Page 19

Key Terms Scenario 1. Fixed cost + Variable costs =______2. Example of Rent and salaries of people who keep the business running. 3. Costs of producing one more unit of a good 4. Our company sold 5 computers at $1,000. This means my ______is

$5,000. 5. Marginal products of labor increases as the number of workers increases. 6. There are ______(a number) of categories of production costs. 7. A firm’s basic goal is to maximize ______. 8. Marginal product of labor decreases as the number of workers increases. 9. The cost of operating a facility, such as a store or factory. 10. This occurs when a company hires too many workers and the people get in

the way of each other. 11. Total revenue-total costs=______12. Price of each good x numbers of goods sold 13. The additional income from selling one more unit of a good. 14. You add more people to your workforce, but you do not produce as much

output 15. The ideal level of output is where marginal revenue ______marginal

Name: Chapter 5: Supply Curve: Shifts of Supply Vocabulary Page 20

Key Terms Scenario 1. When other factors remain the same, price change results in a movement along the supply curve is called a change in ______.

2. When the entire supply curve shifts, this is called a change in ______. 3. Labor, materials, energy, and natural resources are examples of supplier ______.

4. A change in the weather is characterized as ______in the T variable of SPENT.

5. A shift in the supply curve to the [right/left] represents less output of a good. 6. The supply variable that denote a shift in the supply curve are ______.

7. New government regulations are characterized as ______in the T variable of SPENT.

8. When one good is replaced by another good, this is called ______. 9. A new fast-food restaurant enters the market, what SPENT variable is this? 10. New innovations, such as the computer, are characterized as what spent variable?

11. If suppliers expect the price of a good to be higher in the future, they will try to sell the product [now / later].

12. Two goods that are used together are called ______goods. 13. When both corn and soybeans can be grown on the same farmland, an increase in the price of corn will result in a(n) ______in the supply of soybeans.

14. More output is expressed on a supply curve by a shift in the curve to the [left / right]. Page 21

Name: Chapter 5: Supply : Putting it all together

Problem A: The following are quantities of Orange Juice (OJ) that will be supplied at each price.

Supply Schedule A Label this Supply curve “A”. Price per OJ container QS of OJ containers $1 2 2 4 3 6 4 8 5 10

1. Plot the above on the graph to the right.

2. What is the Slope for the OJ in the price range $1 and $2?

3. Plot BOTH Supply schedules on the above graph, labeling them appropriately X—for Supply schedule X and Y—for Supply schedule Y. Then answer problems 4 and 5 below using both supply schedules and curves.

Supply Schedule X Supply Schedule Y Price per OJ container QS of OJ containers Price per OJ container QS of OJ containers $1 4 $1 1 2 6 2 2 3 8 3 3 4 10 4 4 5 12 5 5

4. Many, Moe, and Jack form a new OJ company and call it “OJ’s Boys”. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____

5. Everyone knows that Sugar is added to OJ containers. The price of Sugar increases. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____

6. The price of Apple Juice decreases. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____

7. Extremely cold temperatures in Florida damage orange crops. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____

8. The government subsidizes orange juice producers. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____ Page 22

9. The Orange-Crop Union in Florida demands a raise for Orange crop workers. What is the SPENT variable? ______Which of the above Supply schedules did you use? ____

9. Below are the supply schedules ofr Rolling Rock and two other petroleum companies, Armadillo Oil and Pecos Petroleum. Assuming these three companies make up the entire supply side of the oil market, complete the market supply schedule and draw the market supply curve.

Price Quantity Supplied . Rolling Rock Armadillo Pecos Market $5 10,000 8,000 2,000 10 15,000 10,000 5,000 15 20,000 12,000 8,000 20 25,000 14,000 11,000 25 30,000 16,000 14,000

25 P R 20 I C 15 E ($) 10 Page 23

0 10 20 30 40 50 60 70 80

QUANTITY (In thousands) Page 24