Econ Chapter 5 Guided Reading

Section 1

Define the vocab words from 5.1

Supply:

Law of Supply:

Quantity Supplied:

Supply Schedule:

Variable:

Market Supply Schedule:

Supply Curve:

Market Supply Curve:

Elasticity of Supply:

Marginal Product of Labor:

  1. Explain how the Law of Demand and the Law of Supply differ.
  2. If the price of a good rises, would an existing firm want to produce more or less of their product? Why? What is their motivation?
  3. If the price of a good rises, would new firms want to join the market? Why? What is their motivation?
  4. If the price of a good falls, would firms produce more or less? Why? What is their motivation?
  5. If the price of oil rises around the world, would the supply of oil in Texas increase or decrease? Why?
  6. List the two “movements” that combine to cause the Law of Supply.
  7. Explain how music fads follow the Law of Supply (giving specific genre examples might make this question easier ).

Price of Pizza per Slice / Slices Supplied per Day
.50 / 1,000
1.00 / 1,500
1.50 / 2,000
2.00 / 2,500
2.50 / 3,000
3.00 / 3,500

7. Graph the Supply Schedule

8. Sometimes suppliers cannot immediately respond to a price change in the short term, creating inelastic supply. Explain how this concept relates to produce farmers.

9. Explain how a supplier can have a product with an inelastic supply in the short term but an elastic supply in the long term.

10. Explain whether you think the supply of the following goods is elastic or inelastic and why.

a. Hotel Rooms

b. Taxi Rides

c. Professional Manicures and Pedicures

Chapter 5 Section 2

Define the vocab words from 5.2

Marginal Product of Labor:

Increasing Marginal Returns:

Diminishing Marginal Returns:

Fixed cost:

Variable cost:

Total cost:

Marginal cost:

Marginal revenue:

Operating cost:

1. List two fixed costs for a company and EXPLAIN why each is a fixed cost.

-

-

2. List two variable costs for a company and EXPLAIN why each is a variable cost.

-

-

# of WorkersOutputMarginal Product of Labor

000

144

2106

3177

4236

5285

6313

7321

831-1

3a. In which number of workers do we see increasing marginal returns?

3b. In which number of workers do we first see diminishing marginal returns?

3c. In which worker do we see negative marginal returns?

3d. How many workers should this business employ? Explain your answer.

4. How does the marginal product of labor change as more people are hired?

5. What is the impact of diminishing marginal returns on labor?

6. How does a firm calculate marginal cost?

7. Use the chart below to answer the following questions

Output / Fixed Cost / Variable Cost
1 / $5 / $10
2 / $5 / $27
3 / $5 / $55
4 / $5 / $91
5 / $145

7a. What is the total cost when output is 2?

7b. What is the marginal cost of the third unit?

Shoes / Fixed Cost / Variable Cost / Total Cost / Marginal Cost / Marginal Revenue / Total Revenue / Profit
0 / 36 / 0 / 36 / - / 24 / 0 / -36
1 / 36 / 8 / 44 / 8 / 24 / 24 / -20
2 / 36 / 12 / 48 / 4 / 24 / 48 / 0
3 / 36 / 15 / 51 / 3 / 24 / 72 / 21
4 / 36 / 20 / 56 / 5 / 24 / 96 / 40
5 / 36 / 27 / 63 / 7 / 24 / 120 / 57
6 / 36 / 36 / 72 / 9 / 24 / 144 / 72
7 / 36 / 48 / 84 / 12 / 24 / 168 / 84
8 / 36 / 63 / 99 / 15 / 24 / 192 / 93
9 / 36 / 82 / 118 / 19 / 24 / 216 / 98
10 / 36 / 106 / 142 / 24 / 24 / 240 / 98
11 / 36 / 136 / 172 / 30 / 24 / 264 / 92

Use the chart above to answer question 8.

8a. When the firm produces 0 shoes why is there still a total cost?

8b. Explain why the marginal cost is 8 when the firm decides to increase production from 0 beanbags to 1 beanbag.

8c. Explain why the marginal cost is 7 when the firm goes from producing 4 beanbags to 5 beanbags.

8d. Marginal Revenue is another term for ______.

8e. Total Revenue represents the amount of ______sold…..times the ______(or market price).

8f. Profit represents the ______.....minus the ______.

8g. How many shoes should we make per hour? Explain your answer.

9. A way to find a firm’s best level of output is to find the level where marginal revenue is ______to ______.

10. With the information from question 9, what would the ideal amount of shoes sold be?

11. Explain the two choices when it comes to deciding to shut down a factory.

a.

b.

Define the following terms from 5.3

Subsidy:

Excise tax:

Regulation:

Answer the following questions from 5.3

  1. A ______in the ______of input will cause an increase in the ______at all price levels.
  2. Explain in your own words what the statement in question 1 means.
  3. Factors that reduce supply cause the supply curve to shift to the ______.
  4. Factors that increase supply cause the supply curve to shift to the ______.
  5. List two input costs
  6. Explain how the effect of rising costs causes the supply curve to shift to the left.
  1. Explain how technology causes the supply curve to shift to the right.
  1. “The government can influence supply by raising or lowering the cost of production for a good. This, in turn, encourages or discourages an entrepreneur or industry.” Explain what this quote means.
  1. Explain five scenarios (from the textbook) when governments have subsided industry.
  2. Do taxes cause an increase or decrease in supply?
  3. Why does the government sometimes place excise taxes on goods or services?
  4. Would a tax cause the supply curve to shift to the left or to the right?
  5. Government ______often raises costs to suppliers causing the supply curve to shift to the ______.
  6. Explain how the government putting pollution regulation on the auto industry caused an increase in the cost of production.
  7. Would an increase in the cost of production cause and increase or decrease in supply? Which way would the supply curve shift?
  8. The U.S. imports carpets from India. An increase in wages of Indian workers would ______the supply of carpets in the U.S., causing a shift to the ______.
  9. The U.S. imports cell phones from Japan. A new technology decreases the cost of producing cell phones causing the supply of cell phones to ______, which would shift the supply curve to the ______.
  10. The U.S. imports oil from Saudi Arabia. New oil reserves are discovered in Saudi Arabia which would ______the supply of oil to the U.S. market, causing a shift to the ______in the supply curve.
  11. If you were a pumpkin farmer and you expected the price of pumpkins to double in 30 days....would you sell all your pumpkins today or would you wait and hold onto your supply until the price doubled? Why?
  12. Inflation reduces the value of a dollar. What costs a dollar 50 years ago is much more expensive today (ex: gum used to cost 5 cents and now it costs $1.39). If a good, like gum, can store its value (in other words, it won’t spoil quickly) and gum suppliers know inflation will cause the price of gum to increase next week, more the next week, and even more the following week…..will gum suppliers sell today? Or wait for a higher price in the future?
  13. Explain how inflation and suppliers storing goods due to inflation did not bode well for suppliers in the south during the Civil War.
  14. Would an increase in the number of suppliers in a market cause an increase or decrease in the amount of product supplied? Why?
  15. The factors that cause a supply curve to shift are
  16. T-Shirts are being sold in Caledonia with the football team’s logo on them.
  17. Draw the supply curve and show if the scenario would cause a shift to the right or left.
  18. Write the factor that caused the shift.
  19. Explain why the factor caused the shift to the right or left.
  1. The price of cotton goes up
  1. The team makes the state finals
  1. A machine is invented that prints T-shirts in half the time
  1. The village of Caledonia decides to put a tax on the shirts
  1. The football team goes through a winless season
  1. Three new t-shirt vendors open for business
  1. Explain why the supply of Apartments is inelastic in the short term and can become elastic in the long term.
  1. Grand Rapids becomes an increasingly popular city for college students. Apartment rent increases from $850/month to $1050/ month. Apartment rentals increase from 20,000 residents to 30,000 residents. Calculate the elasticity of supply.
  2. Calculate the elasticity of supply.
  3. Is this elastic or inelastic? Why?
  1. The Caledonia football team has a great season and makes it to the state finals! Cal Football t-shirts are very popular. T-shirt sales in August were $10 and 1,000 were supplied. T-shirt sales in November were $15 and 2,000 were supplied.
  2. Calculate the elasticity of supply.
  3. Is this elastic or inelastic? Why?
  1. The School Spirit Store invests in a new machine that has the technology to print Caledonia t-shirts in half the time. Before the new machine the store charged $5 for a t-shirt and supplied 5,000. After the new machine the store charged $6 and supplied 5,500.
  2. Calculate the elasticity of supply.
  3. Is this elastic or inelastic? Why?
  1. ESSAY
  2. Write about a fictitious company that produces a popular product. Explain how three different interventions from the government might influence the supply of your product.