Class Summary #31 for 11/14/11

Today we began learning about supply curves and quantity supplied.

Prof. Rizz posted some graphical depictions of supply on the board. He also included some tables. Here is one of the tables:

Supple Schedule


Price $              Quantity Supplied
0                        0
.50                     0
1                        1
1.50                   2
2.00                    3
2.50                    4
3.00                     5

This tables shows that if the price is $2, I will produce 3 burritos.

Embedded in the supply curve graph is opportunity costs. Supply means marginal opportunity cost. Each point on the curve refers to marginal opportunity cost of producing each unit at that price, and thus equals the cost of producing that particular unit.

Things to consider on Supply Curves:

1. Marginal Cost
2. Total Cost (of all units for producing--> marginal cost of all units added up
3. Total revenues- PxQ This is what you really care about if you are a producer. 
4. Producer surplus= Total revenue-total cost = how much money you make

Below are some more notes from class about supply curves:

1. As the price increases, you'd be willing to increase your production. Supply curve slopes up. As price goes up, quantity supplied goes up. This is because it costs more to make more.
2. As market price increases, you have more money to invest and create more unit.
3. Supply refers to the relationships. Qs refers to one particular point on the curve.
4. The Law of Supply does not always hold true, but it means that when price goes up, producers have an incentive to produce more.
5. Supply=marginal opportunity costs, costs more to make more.
6. Why does the supply curve slope up?
1. Diminishing returns on production.
7. If prices change for burritos, there is a change in Qs- I move along the supply curve
1. If other stuff changes, the whole supply curve shifts and supply changes. An increase in supply means it shifts out, and a decrease means the supply curve shifts in.
8. What impacts supply changes?
1. Anything other than the price that changes behavior
2. Any change in input prices (things that are involved/costs of production)- cost of production falls, lower/higher wages, etc.
3. Expectations for future costs- if you expect prices to fall, then today you will increase your supply an vice versa
4. Technology- any improvement in technology will increase supply because it is less costly to make
5. Changes in other markets- (if pizza price starts going up, it would decrease burrito supply to focus some on pizza to make profit in that sector
6. Elasticity can be applied to supply
9. Price elasticity of supply: how much more will I produce when price goes up?
1. M= percent change quantity supplied/percent change price of this good.
2. Relatively elastic>1, relatively inelastic<1
10. Price system: we ration  good in economy by prices, since there are more people/demand in world than stuff we have, so we need to allocate those goods by prices
11. When thinking about what price to sell something at, must consider the marginal cost (how much it costs to make next burrito including cheese, beans, etc, not including machines because those are sunk costs). Do not consider average cost for this, must use marginal cost when deciding what price to sell item at.