Ch.+5.1


 * Ch. 5.1 notes and Questions #1-5**

b. inelastic because some people need rides no matter what the price is c. photography is elastic because no one needs photography so if the price rises I think no one will buy as much photography
 * Law of Supply**
 * **Supply** is the amount of goods available
 * **Law of Supply**, the higher the price, the larger the quantity produced
 * **Quantity Supplied** is a term used to describe how much of a good is offered for sale at a specific price
 * law of supply develops from the choices of both current and new producers of a good
 * as price of a good rises, existing firms will produce more in order to earn additional revenue
 * at the same time, new firms will have an incentive to enter the market to earn a profit for themselves
 * if prices of a good falls, some firms will produce less and others might drop out of the market, this is what makes up law of supply(producing more or less and entering or dropping out of the market)
 * Higher Production**
 * If a firm is already earning a profit by selling a good, then an increase in the price (ceteris paribus) will increase the firms profits
 * promise of higher revenues for each sale also encourages the firm to produce more
 * search for profit drives the suppliers decision
 * when price goes up, the supplier recognizes that the chance to make more money and works harder to produce more of a product
 * When price falls entrepreneur is discouraged from producing more
 * Market Entry**
 * Profits appeal both to producers already in the market and people who may decide to join the market
 * The Supply Schedule**
 * Similar to a demand schedule, a **Supply schedule** shows the relationship between price and quantity supplied for a specific good
 * **Variables** factors that can change
 * A Change in the quantity supplied**
 * Economists use the word supply to refer to the relationship between price and quantity supplied
 * number of a product that a producer offers at a specific price is called the quantity supplied at that price
 * A rise or fall in the price of a product will cause the quantity of supplied to change but not the supplied schedule
 * A change in a good's price moves the seller from one row to another in the same supply schedule, but does not change the supply schedule itself
 * Market Supply Schedule**
 * All of the supply schedules of individual firms in a market can be added up to create a **Market Supply Schedule,** a market supply schedule shows the relationship between prices and the total quantity supplied by all firms in a particular market
 * the info in a market supply schedule becomes important when we want to determine the total supply of a product at a certain price in a large area, like a city
 * the market supply schedule for a product resembles the supply schedule for a single producer, but the quantities are much larger
 * market supply schedule lists the same prices as those in the supply schedule for the single producer since all other producers will charge prices within the same range
 * The quantities supplied are much larger because there are many producers in the community
 * like the individual supply schedule reflects the law of supply, producers supply a product more at higher prices
 * The Supply Graph**
 * when the data points in the supply schedule are graphed, they create a **supply curve,** a graph of the quantity supplied of a good at different prices
 * A **market supply curve** is a graph of the quantity supplied of a good by all suppliers at different prices
 * price is shown on the y-axis and the output is on the x-axis, but the amount of output is much larger in a market supply curve
 * supply curve always rises from left to right
 * Supply and Elasticity**
 * **Elasticity of supply** is a way to measure the way quantity supplied reacts to change the price
 * elasticity of supply tells how firms will respond to a change in price
 * Elasticity of supply and time**
 * key factor to determine whether the supply of a good will be elastic or inelastic is TIME
 * Elasticity of supply in the short run**
 * supply is inelastic whether the price increases or decreases
 * but there are businesses that benefit from elastic supply
 * Elasticity in the long run**
 * like demand ,supply can become more elastic over time
 * if price drops and stays low for several years, producers who survived 2 to 3 years of losses might decide to give up something else
 * 1) law of supply is when suppliers produce more products but mark it at a higher price
 * 2) supply is what the product is, quantity supplied is the amount of the product
 * 3) It all depends on the product or service, if it is something like the iphone, no matter how high the price goes it does not react
 * 4) oil production should continue because it gives them the chance to make more money
 * 5) a. elastic because if a room is priced to high people won't enter