Ch.+5.3

Ch. 5.3 Notes and make 3 test questions


 * Input Costs**
 * any change in the cot of an input used to produce a good, sch as raw materials, machinery, or labor will affect supply
 * a rise in the cost of an input will cause a fall in supply at all price levels because the good has become more expensive to produce
 * a fall in the cost of an input will cause an increase in supply at all price levels
 * Effect of rising costs**
 * a supplier sets output at the most profitable level, where price is equal to a marginal cost
 * marginal cost includes the cost of the inputs that go into production, so a rise in the cost of labor or raw materials will translate directly into a higher marginal cost
 * if the cost of inputs increase enough, the marginal cost may become higher than the price, and the firm may not be as profitable as it could be
 * if a firm has no control over the price, the only solution is to cut production and lower marginal cost until marginal cost equals the lower price
 * supply falls at each price, and the supply curve shifts to the left
 * Technology**
 * Input costs can drop as well, advances in technology can lower production costs in many industries
 * robots have replaced many workers on assembly lines and allowed manufacturers to spend less on salaries
 * technology lowers costs and increases supply at all price levels, this effect is seen in a rightward shift in the supply curve
 * Government's influence on supply**
 * the government has the power to affect the supplies of many goods, by raising or lowering the cost of producing goods, the government can encourage or discourage an entrepreneur or an industry within country or abroad
 * Subsidies**
 * one method use by governments to affect supply is to give subsidies to the producers of a good, particularly food
 * A **subsidy** is a government payment that supports a business or market
 * the government often pays a producer a set subsidy for each unit of a good produced
 * governments in developing countries often subsidize manufacturers to protect young, growing industries from strong foreign competition
 * Taxes**
 * A government can reduce the supply of some goods by placing an excise tax on them
 * An **Excise Tax** is a tax on the production costs by adding an extra cost for each unit sold
 * an excise tax increases production costs by adding an extra cost for each unit sold
 * excise taxes are sometimes used to discourage the sale of goods that government thinks are harmful to the public good (alcohol, cigarettes, ect.)
 * Regulation**
 * subsidies and excise taxes represent ways that government directly affects supply by changing revenue or production costs
 * government can also raise or lower supply through indirect means
 * government regulation often has the effect of raising costs
 * **Regulation** is government intervention in a market that affects the price, quantity, or a quality of a good
 * Future Expectations of Prices**
 * If a seller expects the price of a good to rise in the future the seller will store the goods now in order to sell more in the future
 * On the other hand, if the price of the good is expected to drop in the near future sellers will earn more money by placing good on the market immediately before the price falls
 * expectations of higher prices will reduce the supply now and increase supply later, and expectations of lower prices will have the opposite effect
 * Inflation is a condition of rising prices, during periods of inflation, the value of cash in a person's pocket decreases from day to day as prices rise
 * When faced with inflation, suppliers prefer to hold on to goods that will maintain their value rather than sell them for cash that looses its value rapidly
 * Number of Suppliers**
 * one factor to consider when looking at changes in supply is the number of suppliers in the market
 * if more suppliers enter a market, to produce a certain good,the market supply of a good will rise, and the supply curve will shift to the right
 * on the other hand if suppliers stop producing a good and leave the market, the supply will decline
 * Where do firms produce?**
 * A firm will locate close to input suppliers when inputs, such as raw materials, are expensive to transport
 * a firm will locate closely to its consumers when output is more costly to transport


 * Questions**
 * 1) What is a Subsidy?
 * 2) What does an excise tax do?
 * 3) How can regulation cause an increase in the cost of manufacturing a good?