Chap05 Fundamental Economic Concepts

About how many hours

do you spend studying

every night? How many hours

would you study if you were

paid $1 an hour? $10 an hour? If

you will study more for a higher

price, you are following the Law

of Supply. To learn more about

supply, view the Chapter 6 video

lesson:

What Is Supply?

Chapter Overview Visit the Economics: Principlesand Practices Web site at epp.glencoe.com andclick on Chapter 5—Chapter Overviews to previewchapter information.

A firm’s willingness to supply productsdepends on the price it can charge andon its cost of production.

A firm’s willingness to supply productsdepends on the price it can charge andon its cost of production.

http://epp.glencoe.com

What Is Supply?

Main IdeaFor almost any good or service, the higher the price,the larger the quantity that will be offered for sale.

Reading StrategyGraphic Organizer As you read the section, completea graphic organizer similar to the one below bydescribing how supply differs from demand.

Key Termssupply, Law of Supply, supply schedule, supply curve,market supply curve, quantity supplied, change in

quantity supplied, change in supply, subsidy, supplyelasticity

ObjectivesAfter studying this section, you will be able to:1. Understand the difference between the supply

schedule and the supply curve.2. Explain how market supply curves are derived.3. Specify the reasons for a change in supply.

Applying Economic ConceptsSupply The Law of Supply tells us that firms will produce and offer for sale more of their product at a high price than at a low price. On another level,think about your own labor. You are the supplier, and the higher the pay, the more work you are will-ing to supply.

Differences

Supply Demand

Cover Story

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about what is the best way to do it . . . .

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eral advantages. . . . No knowledge of HTML is

required, because all the site design is done using

ready-made templates (and) authoring tools. . . .

—PC Magazine, September 17, 1998

Online business grows.

T he concept of supply is based on voluntarydecisions made by producers, whether theyare proprietorships working out of home

offices or large corporations operating out of down-town corporate headquarters. For example, a pro-ducer might decide to offer one amount for sale atone price and a different quantity at another price.Supply, then, is defined as the amount of a productthat would be offered for sale at all possible pricesthat could prevail in the market.

Because the producer is receiving payment for hisor her products, it should come as no surprise thatmore will be offered at higher prices. This forms thebasis for the Law of Supply, the principle that sup-pliers will normally offer more for sale at high pricesand less at lower prices.

An Introduction to SupplyAll suppliers of economic products mustdecide how much to offer for sale at various

prices—a decision made according to what is bestfor the individual seller. What is best depends, in

CHAPTER 5: SUPPLY 113

turn, upon the cost of producing the goods or serv-ices. The concept of supply, like demand, can beillustrated in the form of a table or a graph.

The Supply ScheduleThe supply schedule is a listing of the various

quantities of a particular product supplied at allpossible prices in the market. Panel A of Figure 5.1is a hypothetical supply schedule for compact dig-ital discs. It shows the quantities of CDs that will

be supplied at various prices, other things beingequal. If you compare it to the demand schedule inPanel A of Figure 4.1 on page 90 you will see that thetwo are remarkably similar. The only real differencebetween the two is that prices and quantities nowmove in the same direction for supply—rather thanin opposite directions as in the case of demand.

The Individual Supply CurveThe data presented in the supply schedule can also

be illustrated graphically as the upward-sloping linein Panel B of Figure 5.1. To draw it, we transfer eachof the price-quantity observations in the scheduleover to the graph, and then connect the points toform the curve. The result is a supply curve, a graphshowing the various quantities supplied at each andevery price that might prevail in the market.

All normal supply curves slope from the lowerleft-hand corner of the graph to the upper right-hand corner. This is a positive slope and showsthat if one of the values goes up, the other will goup too.

While the supply schedule and curve in the figurerepresent a single, hypothetical producer of compactdigital discs, we should realize that supply is a verygeneral concept. In fact, you are a supplier when youlook for a job and offer your services for sale. Youreconomic product is your labor, and you wouldprobably be willing to supply more labor for a highwage than for a low one.

The Market Supply CurveThe supply schedule and curve in Figure 5.1 show

the information for a single firm. Frequently, how-ever, we are more interested in the market supplycurve, the supply curve that shows the quantitiesoffered at various prices by all firms that offer theproduct for sale in a given market.

To obtain the data for the market supply curve,add the number of CDs that individual firms wouldproduce at each and every price, and then plot themon a separate graph. In Figure 5.2, point a on themarket supply curve represents six CDs—four fromthe first firm and two from the second—that areoffered for sale at a price of $15. Correspondingly,point b on the curve represents a total of nine CDsoffered for sale at a price of $20.

PriceQuantitySupplied

$30

25

20

15

10

5

$30252015105

8

7

6

4

2

0

E C O N O M I C SA T A G L A N C EE C O N O M I C SA T A G L A N C E Figure 5.1Figure 5.1

Supply of Compact Discs

Using Tables and GraphsUsing Tables and Graphs The supply curve is drawn from the values on the schedule. How does the Law of Supply differ from the Law of Demand?

a

8642 70

Pric

e

Quantity

BB Supply Curve

AA Supply Schedule

bDecrease in

quantity supplied

Increase in quantity supplied

114 UNIT 2 MICROECONOMICS

Change in Quantity SuppliedThe quantity supplied is the amount that pro-ducers bring to market at any given price. A

change in quantity supplied is the change in amountoffered for sale in response to a change in price. InFigure 5.1, for example, four CDs are supplied whenthe price is $15. If the price increases to $20, six CDsare supplied. If the price then changes to $25, sevenunits are supplied.

These changes illustrate a change in the quan-tity supplied which—like the case of demand—shows as a movement along the supply curve.Note that the change in quantity supplied canbe an increase or a decrease, depending on whethermore or less of a product is offered. For example,the movement from a to b in Figure 5.1 showsan increase because the number of productsoffered for sale goes from four to six when theprice goes up.


Firm A Firm B


Individual and Market Supply Curves

Using GraphsUsing Graphs The market supply curve, SS, is the sum of all individual supply curves in the market. Why are the supply curves upward sloping?

Pric

e

$30

25

20

15

10

5

$30

25

20

15

10

5

0 0 3 41 2 54 762 8Quantity

+ =Pric

e

Quantity

Price Firm A + Firm B = Market

$30

25

20

15

10

5

8

7

6

4

2

0

+ =

5

4

3

2

1

0

13

11

9

6

3

0

Quantity of CDs Supplied by:

Add the first supply curve . . .

. . . to the second supply curve . . .

Market

Pric

e

$30

25

20

15

10

5

0 963 11 13Quantity

S

S

a

b

. . . to get theMarket Supply Curve.

In a competitive economy, producers usuallyreact to changing prices in just this way. While theinteraction of supply and demand usually deter-mines the final price for the product, the producerhas the freedom to adjust production. Take oil asan example. If the price of oil falls, the producermay offer less for sale, or even leave the marketaltogether if the price goes too low. If the pricerises, the oil producer may offer more units for saleto take advantage of the better prices.

Change in SupplySometimes something happens to cause achange in supply, a situation where suppliers

offer different amounts of products for sale at allpossible prices in the market. For example, the sup-ply schedule in Figure 5.3 shows that producers arenow willing to offer more CDs for sale at every

price than before. Where 6 units were offered at aprice of $15, now there are 13. Where 11 wereoffered at a price of $25, 18 are now offered, and soon for every price shown in the schedule.

When both old and new quantities supplied areplotted in the form of a graph, it appears as if thesupply curve has shifted to the right, showing anincrease in supply. For a decrease in supply to occur, lesswould be offered for sale at each and every price,and the supply curve would shift to the left.

Changes in supply, whether increases ordecreases, can occur for several reasons. As youread, keep in mind that all but the last reason—thenumber of sellers—affects both the individual andthe market supply curves.

Cost of InputsA change in the cost of inputs can cause a

change in supply. Supply might increase because ofa decrease in the cost of inputs, such as labor orpackaging. If the price of the inputs drops, produc-ers are willing to produce more of a product at eachand every price, thereby shifting the supply curveto the right.

An increase in the cost of inputs has the oppositeeffect. If labor or other costs rise, producers wouldnot be willing to produce as many units at each andevery price. Instead, they would offer fewer productsfor sale, and the supply curve would shift to the left.

ProductivityWhen management motivates its workers, or if

workers decide to work more efficiently, productiv-ity should increase. The result is that more CDs areproduced at every price, which shifts the supply

Economic Efficiency In 1814 Francis Lowell com-bined all the stages of textile production—spinning,weaving, bleaching, dyeing, and printing—underone roof. His efficient mill launched the nation’sIndustrial Revolution, changing the system of man-ufacturing from the home to the factory.

Supply

The Effect of Price A delicatessen offers differ-ent kinds of cheeses at various prices. How doesthe price of a product affect the quantity offeredfor sale?


curve to the right. On the other hand, if workersare unmotivated, untrained, or unhappy, produc-tivity could decrease. The supply curve shifts to theleft because fewer goods are brought to the marketat every possible price.

TechnologyNew technology tends to shift the supply curve

to the right. The introduction of a new machine,chemical, or industrial process canaffect supply by lowering the cost ofproduction or by increasing produc-tivity. For example, improvementsin the fuel efficiency of aircraftengines have lowered the cost ofproviding passenger air service.When production costs go down,the producer is usually able to pro-duce more goods and services ateach and every price in the market.

New technologies do not alwayswork as expected, of course.Equipment can break down, or thetechnology—or even replacementparts—might be difficult to obtain.This would shift the supply curve tothe left. These examples are excep-tions, however. New technology farmore often increases supply.

Taxes and SubsidiesFirms view taxes as costs. If the

producer’s inventory is taxed or iffees are paid to receive a license toproduce, the cost of production goesup. This causes the supply curve toshift to the left. Or, if taxes go downproduction costs go down, supplythen increases and the supply curveshifts to the right.

A subsidy is a government pay-ment to an individual, business, orother group to encourage or protect acertain type of economic activity.Subsidies lower the cost of produc-tion, encouraging current producersto remain in the market and new

producers to enter. When subsidies are repealed,costs go up, producers leave the market, and thesupply curve shifts to the left.

Historically, many farmers in the milk, corn,wheat, and soybean industries received substantialsubsidies to support their income. While manyfarmers would have gone out of business withoutthese subsidies, the fact that they were paidensured their ability to remain operational, andthe market supply curve shifted to the right.


A Change in Supply

Using Tables and Graphs A change in supply means that a different quantity is supplied at every price. What does a shift of the supply curve to the right show?

Using Tables and Graphs A change in supply means that a different quantity is supplied at every price. What does a shift of the supply curve to the right show?

Pric

e

$30

25

20

15

10

5

0 16 2013 1811963Quantity

S‘

a‘a

b‘b

S

S‘S

Price Old (SS) New (S’S’)

$30

25

20

15

10

5

13

11

9

6

3

0

20

18

16

13

9

3

Quantity Supplied

Increase in supply

Decrease in supply


ExpectationsExpectations about the future price of a product

can also affect the supply curve. If producers thinkthe price of their product will go up, they maywithhold some of the supply. This causes supplyto decrease and the supply curve to shift to theleft. On the other hand, producers may expectlower prices for their output in the future. In thissituation, they may try to produce and sell asmuch as possible right away, causing the supplycurve to shift to the right.

Government RegulationsWhen the government establishes new regula-

tions, the cost of production can be affected, caus-ing a change in supply. For example, when the

government mandates new auto safety featuressuch as air bags or emission controls, cars cost moreto produce. Producers adjust to the higher produc-tion costs by producing fewer cars at each andevery price in the market.

In general, increased—or tighter—government regu-lations restrict supply, causing the supply curve toshift to the left. Relaxed regulations allow producersto lower the cost of production, which results in ashift of the supply curve to the right.

Number of SellersAll of the factors you just read about can cause

a change in an individual firm’s supply curve and,consequently, the market supply curve. It follows,therefore, that a change in the number of supplierscauses the market supply curve to shift to the rightor left.

As more firms enter an industry, the supply curveshifts to the right. In other words, the larger thenumber of suppliers, the greater the market supply.If some suppliers leave the market, fewer productsare offered for sale at all possible prices. This causessupply to decrease, shifting the curve to the left.

In the real world, sellers are entering the marketand leaving the market all the time. Some economicanalysts believe that, at least initially, the develop-ment of the Internet will result in larger numbersentering the market than in leaving. They point outthat almost anyone with Internet experience and afew thousand dollars can open up his or her ownInternet store. Because of the ease of entry into thesenew markets, being a seller is no longer just for thebig firms.

Elasticity of SupplyJust as demand has elasticity, there is elastic-ity of supply. Supply elasticity is a measure

of the way in which quantity supplied responds toa change in price. If a small increase in price leadsto a relatively larger increase in output, supply iselastic. If the quantity supplied changes very little,supply is inelastic.

What is the difference between supply elasticityand demand elasticity? Actually, there is very littledifference. If quantities are being purchased, the

Real estate agents assist inrenting, selling, and buyingproperty for clients. Inreturn, they receive a per-centage of the rent or saleprices of the property.

The WorkResponsibilities includeobtaining listings—owneragreements to place proper-ties for rent or sale—adver-tising the property, and

showing the property to prospective renters and buyers.Agents need to be familiar with fair-market values, zon-ing laws, local land-use laws, housing and building codes,insurance coverage, mortgage and interest rates, andcredit and loan policies. They may also need to knowabout leasing practices, business trends, location needs,transportation, utilities, and labor supply. Agents oftenwork evenings and weekends because they must accom-modate their schedule to that of the client.

QualificationsAgents should have a high school education at the min-imum and possess a real estate license.

Real Estate Agent


concept is demand elasticity. If quantities are beingbrought to market for sale, the concept is supplyelasticity. Keep in mind that elasticity is simply a measure of the way quantity adjusts to a changein price.

Three ElasticitiesExamples of supply elasticity are illustrated in

Figure 5.4. The supply curve in Panel A is elasticbecause the change in price causes a relativelylarger change in quantity supplied. Doubling theprice from $1 to $2 causes the quantity brought tomarket to triple.

Panel B shows an inelastic supply curve. Achange in price causes a relatively smaller changein quantity supplied. When the price is doubled

from $1 to $2, the quantity brought to marketgoes up only 50 percent, or from two units tothree units.

Panel C shows a unit elastic supply curve. Achange in price causes a proportional change in thequantity supplied. The price doubles from $1 to$2, which causes the quantity brought to marketalso to double.

Determinants of Supply ElasticityThe elasticity of a business’s supply curve

depends on the nature of its production. If a firmcan adjust to new prices quickly, then supply is likelyto be elastic. If the nature of production is such thatadjustments take longer, then supply is likely to beinelastic.


Using Graphs Using Graphs The elasticity of supply, like the elasticity of demand, is a measure of responsiveness. The key to elasticity is the way the dependent variable (quantity supplied) changes in response to a change in the independent variable (price). What determines whether a business’s supply curve is elastic or inelastic?

$2

Supply ElasticityAA Elastic Supply

0 1 2 3 4 5 6

1S

S

Pric

e

Quantity

Type ofElasticity

Change in Quantity SuppliedDue to a Change in Price

More than proportional

Proportional

Less than proportional

Elastic

Unit Elastic

Inelastic

D

$2

0 1 2 3 4 5 6

1S

S

Pric

e

Quantity

C Unit Elastic SupplyC

$2

B

0 1 2 3 4 5 6

1S

S

Pric

e

Quantity

Inelastic SupplyB

D Change in Supply Due to Change in Price


The supply curve for shale oil, for example, islikely to be inelastic in the short run. No matterwhat price is being offered, companies will find itdifficult to increase output because of the hugeamount of capital and technology needed beforeproduction can be increased very much.

However, the supply curve is likely to be elasticfor kites, candy, and other products that can bemade quickly without huge amounts of capital andskilled labor. If consumers are willing to pay twicethe price for any of these products, most producerswill be able to gear up quickly to significantlyincrease production.

The elasticity of supply is different from theelasticity of demand in several important respects.First, the number of substitutes has no bearing onthe elasticity of supply. In addition, considera-tions such as the ability to delay the purchase orthe portion of income consumed have no rele-vance to supply elasticity even though they areessential for demand elasticity. Instead, only pro-duction considerations determine supply elastic-ity. If a firm can react quickly to higher or lowerprices, then supply is likely to be elastic. If thefirm takes longer to react to a change in prices,then supply is likely to be inelastic. For these rea-sons, there is no supply elasticity table equivalentto Figure 4.6 on page 106.

Checking for Understanding1. Main Idea Using your notes from the graphic

organizer activity on page 113, describe howsupply is different from demand.

2. Key Terms Define supply, Law of Supply, sup-ply schedule, supply curve, market supplycurve, quantity supplied, change in quantitysupplied, change in supply, subsidy, supplyelasticity.

3. Describe the difference between the supplyschedule and the supply curve.

4. Describe how market supply curves areobtained.

5. List the factors that can cause a change insupply.

Applying Economic Concepts6. Supply Provide an example of an economic

good whose producer would increase thequantity supplied if the price were to go up.

7. Understanding Cause and Effect Accordingto the Law of Supply, how does price affectthe quantity offered for sale?

Practice and assess key social studies skills withthe Glencoe Skillbuilder Interactive Workbook,Level 2.

Supply and Demand

Elasticity Business owners need to be aware ofthe relationship between supply and demand.What is the difference between supply elasticityand demand elasticity?


EnterprisingEntrepreneurs

There have been literally millionsof American entrepreneurs. A few,however, are noteworthy for takingmodest business dreams to stunningheights. Three of the most impres-sive are Richard Sears, MiltonHershey, and John Johnson.

RICHARD SEARS

In 1886, 23-year-old RichardSears was a railway station agent inNorth Redwood, Minnesota. Searshad free time on his hands, so hedecided to make a little money onthe side. He bought a surplus ship-ment of watches and started sellingthem to other station agents.

Encouraged by hisprofits, Sears

moved toChicago, wherehe partneredwith Alvah C.Roebuck, whocould repairwatches. Theyfounded Sears,Roebuck andCompany in

1893, and published their first cat-alog a year later. Rural residents,who could “Shop at Sears andSave” by avoiding middlemen,loved the catalog, and the com-pany prospered. Within a decade,

Sears was the largestmail-order firm in theworld. In 1925, Searsopened its first retail

store. Today, Sears, Roebuck andCompany is one of the largest retailbusinesses in the world, employingmore than 300,000 people.

MILTON HERSHEY

Milton Hershey started as apoor farm boy, and received littleeducation. He failed as a candyseller in Philadelphia, Denver, NewYork, Chicago, and New Orleans.At 30, he was flat broke andshunned by his family. But onemore try at the candy business—this time making a caramel candyof his own recipe—made him a suc-cess. In fact, his “Hershey’s CrystalA” made him a millionaire. In1895, Hershey sold his caramelcompany and went into the choco-late business. In just a few years,the name Hershey became synony-mous with chocolate. It still is, dueto the dogged persistence of a manwho failed for decades before hesucceeded.

JOHNJOHNSON

In 1942,John Johnsonset off topublish amagazinecalled NegroDigest. Most white maga-zine sellers, doubting that there was a sufficient African Americanreadership, refused to carry it. SoJohnson convinced hundreds ofacquaintances to ask for the maga-zine at newsstands, and then to buyall the copies once they came in.Circulation soared. Johnson thenpersuaded the first lady, EleanorRoosevelt, to write a piece called “IfI Were a Negro” for the magazine.The publicity tripled circulation.

Johnson followed this successin 1945 by founding Ebony, a mag-azine aimed at African Americanveterans of World War II. Themagazine proved even more popu-lar than his first. A third maga-zine, Jet, was produced, andwhereas there had been nonational magazines for AfricanAmericans before, there were nowthree. And they were all a result ofthe hard work of just one enter-prising entrepreneur.

Examining the Profile1. Making Generalizations Explain

how persistence played a role in thesuccess of each of these men.

2. For Further Research Find out theetymology of entrepreneur and explainwhy the word is used as it is today.


The Theory of Production

Main IdeaA change in the variable input called labor results ina change in production.

Reading StrategyGraphic Organizer As you read about production,complete a graphic organizer similar to the onebelow by listing what occurs during the three stages of production.

Key Termstheory of production, short run, long run, Law ofVariable Proportions, production function, raw mate-rials, total product, marginal product, stages of pro-duction, diminishing returns

ObjectivesAfter studying this section, you will be able to:1. Explain the theory of production.2. Describe the three stages of production.

Applying Economic ConceptsDiminishing Returns Has the quality of your work everdeclined because you worked too hard at something?Sometimes you reach a stage where you still makeprogress but at a diminished rate.

W hether they are film producers of multi-million-dollar epics or small firms thatmarket a single product, suppliers face a

difficult task. Producing an economic good or serv-ice requires a combination of land, labor, capital,and entrepreneurs. The theory of production dealswith the relationship between the factors of produc-tion and the output of goods and services.

The theory of production generally is based on theshort run, a period of production that allows produc-ers to change only the amount of the variable inputcalled labor. This contrasts with the long run, a periodof production long enough for producers to adjustthe quantities of all their resources, including capital.For example, Ford Motors hiring 300 extra workersfor one of its plants is a short-run adjustment. If Fordbuilds a new factory, this is a long-run adjustment.

Law of Variable ProportionsThe Law of Variable Proportions statesthat, in the short run, output will change

as one input is varied while the others are heldconstant. Although the name of the law is prob-ably new to you, the concept is not.

Cover Story

The Effects Are Getting Less

Special All the TimeWhen George Lucas declares that digital effects

are a technological advance as profound as the advent

of sound and color, he is exactly right. . . .

But is the revolution

already over?Mixed reaction to his new

movie, Star Wars Episode I:

The Phantom Menace, sug-

gest that it may be, in the

same way that revolutions

ushered in by color and

sound were profound but

brief affairs. . . . after all,

none of us is amazed when we go to the movies and

hear an actor speak. Nor are we amazed when we go

to the movies and see color images.

What this creates, for effects-driven movies, is a

scale of diminishing returns. The more Lucas

achieves in the digital arena, the smarter we become,

the harder we are to impress. . . .

—Philadelphia Daily News, May 21, 1999

New technology isaltering moviemaking.

Stage I Stage II Stage III

122

For example, if you are preparing a meal, youknow that a little bit of salt will make the foodtaste better. A bit more may make it tastier still.Yet, at some point, too much salt will ruin themeal. As the amount of the input—salt—varies, sodoes the output—the quality of the meal.

The Law of Variable Proportions deals with therelationship between the input of productiveresources and the output of final products. Thelaw helps answer the question: How is the outputof the final product affected as more units of onevariable input or resource are added to a fixedamount of other resources?

A farmer, for example, may have all the land,machines, workers, and other items needed toproduce a crop. However, the farmer, may havesome questions about the use of fertilizer. Howwill the crop yield be affected if different amountsof fertilizer are added to fixed amounts of theother inputs? In this case, the variable input is thefertilizer added per acre.

Of course, it is possible to vary all the inputs atthe same time. The farmer may want to knowwhat will happen to output if the fertilizer and other factors of production are varied.Economists do not like to do this,however, because when more thanone factor of production is varied,it becomes harder to gauge theimpact of a single variable on totaloutput.

The Production FunctionThe Law of Variable Propor-tions can be illustrated by

using a production function—aconcept that describes the relation-ship between changes in output todifferent amounts of a single inputwhile other inputs are held con-stant. The production function canbe illustrated with a schedule, suchas the one in Panel A of Figure 5.5,or with a graph like the one inPanel B.

The production schedule in thefigure lists hypothetical output as

the number of workers is varied from zero to 12.With no workers, for example, there is no output.If the number of workers increases by one, outputrises to seven. Add yet another worker and totaloutput rises to 20. This information is used to con-struct the production function that appears as thegraph in Panel B, where the variable input is shownon the horizontal axis with total production onthe vertical axis.

In this example, only the number of workerschanges. No changes occur in the amount ofmachinery used, the level of technology, or thequantities of raw materials—unprocessed naturalproducts used in production. Under these condi-tions, any change in output must be the result ofthe variation in the number of workers.

Total ProductThe second column in the production schedule

in Figure 5.5 shows total product, or total outputproduced by the firm. The numbers indicate thatthe plant barely operates when it has only one ortwo workers. As a result, some resources stand idlemuch of the time.

The Production Function

Inputs and Outputs All businesses must deal with the ques-tions that surround the production relationship. Why is the useof the production function important in business?


Total Product RisesAs more workers are added, how-

ever, total product rises. More work-ers can operate more machinery,and plant output rises. Additionalworkers also means that the workerscan specialize. For example, onegroup runs the machines, anotherhandles maintenance, and a thirdgroup assembles the products. Byworking in this way—as a coordi-nated whole—the firm can be moreproductive.

Total Product SlowsAs even more workers are added

output continues to rise, but it doesso at a slower rate until it can growno further. Finally, the addition ofthe eleventh and twelfth workerscauses total output to go downbecause these workers just get in theway of the others. Although theideal number of workers cannot bedetermined until costs are consid-ered, it is clear that the eleventh andtwelfth workers will not be hired.

Marginal ProductThe measure of output shown in

the third column of the productionschedule in Figure 5.5 is an impor-tant concept in economics. Themeasure is known as marginalproduct, the extra output or changein total product caused by the addi-tion of one more unit of variableinput.

As we can see in the figure, themarginal product, or extra output ofthe first worker, is seven. Likewise,the marginal product of the secondworker—which is equal to the changein total product—is 13. Together,both workers account for 20 units oftotal product.


The Law of Variable Proportions

Synthesizing Information Synthesizing Information The law can be shown as the production schedule in A, or as the production function shown in B. How are the three stages of production defined?

Tota

l Pro

duct

140

13Variable Input: Number of Workers

AA The Production Schedule

Number ofWorkers

TotalProduct

MarginalProduct*

Regions of Production

0

1

2

3

4

5

6

7

8

9

10

11

12

Stage I

Stage II

Stage III

0

7

20

38

62

90

110

129

138

144

148

145

135

0

7

13

18

24

28

20

19

9

6

4

–3

–10

120

100

80

60

40

20

0 1 42 7 10 12863 5 9 11

Stage IIIStage I Stage II

BB The Production Function

*All figures in terms of output per day


Three Stages of ProductionWhen it comes to determining the optimalnumber of variable units to be used in pro-

duction, changes in marginal product are of spe-cial interest. Figure 5.5 shows the three stagesof production—increasing returns, diminishingreturns, and negative returns—that are based on theway marginal product changes as the variableinput of labor is changed.

In Stage I, the first workers hired cannot workefficiently because there are too many resourcesper worker. As the number of workers increases,they make better use of their machinery andresources. This results in increasing returns (orincreasing marginal products) for the first fiveworkers hired.

As long as each new worker hired contributesmore to total output than the worker before, totaloutput rises at an increasingly faster rate. Becausemarginal output increases by a larger amount everytime a new worker is added, Stage I is known as thestage of increasing returns. Companies, however,do not knowingly produce in Stage I for very long.As soon as a firm discovers that each new workeradds more output than the last, the firm is temptedto hire another worker.

In Stage II, the total production keeps growing,but by smaller and smaller amounts. Any additionalworkers hired may stock shelves, package parts, anddo other jobs that leave the machine operators freeto do their jobs. The rate of increase in total pro-duction, however, is now starting to slow down.Each additional worker, then, is making a diminish-ing, but still positive, contribution to total output.

Stage II illustrates the principle of diminishingreturns, the stage where output increases at adiminishing rate as more units of a variable inputare added. In Figure 5.5, Stage II begins when thesixth worker is hired, because the 20-unit marginalproduct of that worker is less than the 28-unit marginal product of the fifth worker.

The third stage of production begins when theeleventh worker is added. By this time, the firm hashired too many workers, and they are starting to getin each other’s way. Marginal product becomesnegative and total plant output decreases.

Most companies do not hire workers whoseaddition would cause total production to decrease.Therefore, the number of workers hired would befound only in Stage II. The exact number of work-ers hired depends on the cost of each worker. If thecost is low, the firm should hire at least six, but nomore than 10, workers.


organizer activity on page 122, explain howproduction is affected by a change in inputs.

2. Key Terms Define theory of production, shortrun, long run, Law of Variable Proportions,production function, raw materials, totalproduct, marginal product, stages of produc-tion, diminishing returns.

3. Describe the relationship on which the theoryof production is based.

4. Explain how marginal product changes in eachof the three stages of production.

5. Identify what point will eventually be reachedif companies continue adding workers.

Applying Economic Concepts6. Diminishing Returns Provide an example of a

time when you entered a period of diminish-ing returns or even negative returns. Explainwhy this might have occurred.

7. Sequencing Information You need to hireworkers for a project you are directing.You may add one worker at a time in amanner that will allow you to measure theadded contribution of each worker. Atwhat point will you stop hiring workers?Relate this process to the three stages ofthe production function.



The price of the average desktop computershrank by 17.3% in just one year. As pricescontinue to fall, computer makers arescrambling to find other ways to make aprofit.

New Directions forPC Makers

Hardly a weekgoes by that somewild-eyed startupdoesn’t announcea scheme to giveaway personalcomputers—as ifthe PC were somethrowaway ratherthan the machinethat ushered in theInformation Age.On March 31, fol-lowing in the foot-steps of Free-PC,NuAction, andDirectWeb, NewYork-based Gobi

said it would hand out free PCs to consumerswho sign up for three years of Internet service.Meanwhile, emachines Inc. keeps cranking outPCs priced as low as $399, and startupMicroworkz Computer Corp. says it will soonsell them for $299. . . .

. . . Two years of free-falling prices are squeez-ing the life out of margins, threatening to leavePC makers gasping for profits. . . . Analysts

expect prices to plummet nearly 15% [in oneyear], capping industrywide sales growth at lessthan 5%. . . .

Suddenly, PC makers are heading off in sur-prising new directions. Dell and Compaq aredeveloping E-commerce businesses—whetherit’s collecting monthly Internet service fees orbecoming online sellers of everything fromprinters to carrying cases. . . .

Other PC makers think new gizmos are theanswer. Compaq and Packard Bell NEC Inc.are preparing non-PC products such as cellphones and newfangled devices that act asWeb-access machines. . . .

Ultimately, these launches into cyberspacecould morph into sweeping new business modelsin which PC companies make money not on theirhardware but on the services theycan bundle with their boxes.Already, Gateway and Compaqget a share of monthly revenuesfrom Internet service providersfeatured on their machines.And the more subscribersthey sign up, the more adver-tisers will pay to get their adsto these potential shoppers.

APRIL 19, 1999 N e w s c l i p

Examining the Newsclip1. Understanding Cause and Effect Why are companies

moving away from producing PCs?

2. Making Generalizations What are some companiesdoing in order to stay competitive in the computerindustry?

—Reprinted from April 19, 1999 issue of Business Week, by special permission,copyright © 1999 by The McGraw-Hill Companies, Inc.


Cost, Revenue, and ProfitMaximization

Main IdeaProfit is maximized when the marginal costs of pro-duction equal the marginal revenue from sales.

Reading StrategyGraphic Organizer As you read the section, completea graphic organizer similar to the one below byexplaining how total revenue differs from marginalrevenue. Then provide an example of each.

Example:

Example:

Total revenue is:

Marginal revenue is:

Key Termsfixed cost, overhead, variable cost, total cost, marginal cost, e-commerce, total revenue, marginalrevenue, marginal analysis, break-even point, profit-maximizing quantity of output

ObjectivesAfter studying this section, you will be able to:1. Define four key measures of cost.2. Identify two key measures of revenue.3. Apply incremental analysis to business decisions.

Applying Economic ConceptsOverhead Overhead is one type of fixed cost that wetry to avoid whenever we can. Read to see how over-head can even change the way people do business.

Cover Story

More RetailersDiscover NetAuctions

Johnelle Lentner rarely

made more than $250 a month

peddling benches, chests, pie

safes and other collectibles

from the space she rented in

an Isanti, Minnesota-based

antiques shop.But last August, Lentner

gave up brick-and-mortar retailing and took her busi-

ness entirely online. Since ending the $60-a-month

lease with Isanti Antiques to sell over Internet auction

site eBay, Lentner’s monthly income has shot up 700%.

“You get the highest dollar amount for what you’re

trying to sell online, and there is no overhead. . . .”

—USA Today, May 17, 1999

Collectible availableonline

J ohnelle Lentner talked about eliminating over-head for her business. Overhead is one of manydifferent measures of costs.

Measures of CostBecause the cost of inputs influences effi-cient production decisions, a business

must analyze costs before making its decisions.To simplify decision making, cost is divided intoseveral different categories.

The first category is fixed cost—the cost that abusiness incurs even if the plant is idle and out-put is zero. It makes no difference whether thebusiness produces nothing, very little, or a largeamount. Total fixed cost, or overhead, remainsthe same.

Fixed costs include salaries paid to executives,interest charges on bonds, rent payments onleased properties, and local and state propertytaxes. Fixed costs also include depreciation, the



gradual wear and tear on capital goods over timeand through use. A machine, for example, will notlast forever because its parts will wear out slowlyand eventually break.

The nature of fixed costs is illustrated in the fourthcolumn of the table in Figure 5.6, which is an exten-sion of the production schedule in Figure 5.5 on page124. Note that, regardless of the level of total output,fixed costs amount to $50.

Another kind of cost is variable cost, a costthat changes when the business rate of operationor output changes. While fixed costs generally areassociated with machines and other capital goods,variable costs generally are associated with laborand raw materials. For example, wage-earningworkers may be laid off or worked overtime as

output changes. Other examples of variable costsinclude electric power to run the machines andfreight charges to ship the final product.

In Figure 5.6 the only variable cost is labor. Ifone worker costs $90 per day, the total variablecost for one worker is $90. Two workers, or twounits of variable input, cost $180, and so on.

The total cost of production is the sum of thefixed and variable costs. Total cost takes intoaccount all the costs a business faces in the courseof its operations. The business represented inFigure 5.6, for example, might employ six workers—costing $90 each for a total of $540—to produce110 units of total output. If no other variable costsexisted, and if fixed costs amounted to $50, thetotal cost of production would be $590.

Using TablesUsing Tables The concepts of marginal product, marginal cost, and marginal revenue are central to economic analysis. Marginal product is used to define the three stages of production. Marginal cost and marginal revenue are used to determine the profit-maximizing quantity of output. How do total costs differ from marginal costs?


Production, Costs, and RevenuesProduction Schedule Costs Revenues Profit

Numberof

WorkersRegions ofProduction

Stage I

Stage II

Stage III

TotalFixedCosts

TotalRevenue

TotalProfit

0

1

2

3

4

5

6

7

8

9

10

11

12

TotalProduct

0

7

20

38

62

90

110

129

138

144

148

145

135

MarginalProduct

0

7

13

18

24

28

20

19

9

6

4

–3

–10

$50

50

50

50

50

50

50

50

50

50

50

50

50

TotalVariable

Costs

$0

90

180

270

360

450

540

630

720

810

900

990

1,080

TotalCosts

$50

140

230

320

410

500

590

680

770

860

950

1,040

1,130

MarginalCosts

--

$13

6.92

5.00

3.75

3.21

4.50

4.74

10.00

15.00

22.50

--

--

$0

105

300

570

930

1,350

1,650

1,935

2,070

2,160

2,220

2,175

2,025

MarginalRevenue

--

$15

15

15

15

15

15

15

15

15

15

15

15

–$50

–35

70

250

520

850

1,060

1,210

1,300

1,300

1,270

1,135

895


Another category of cost is marginal cost—theextra cost incurred when a business produces oneadditional unit of a product. Because fixed costs donot change from one level of production toanother, marginal cost is the per-unit increase invariable costs that stems from using additionalfactors of production.

Figure 5.6 shows that the addition of the firstworker increased the total product by seven units.Because total variable costs increased by $90, each of the additional seven units cost $12.86, or$90 divided by seven. If another worker is added,13 more units of output will be produced for an additional cost of $90. The marginal, or extra,cost of each unit of output is $90 divided by 13,or $6.92.

Applying Cost PrinciplesThe cost and combination, or mix, ofinputs affects the way businesses produce.

The following examples illustrate the importanceof costs to business firms.

Self-Service Gas StationConsider the case of a self-serve gas station with

many pumps and a single attendant who works inan enclosed booth. This operation is likely to havelarge fixed costs, such as the cost of the lot, the

pumps and tanks, and the taxes and licensing feespaid to state and local governments.

The variable costs, on the other hand, are rela-tively small. The station’s variable costs include thehourly wage paid to the employee, the cost of elec-tricity for lights and pumps, and the cost of the gassold. When all costs are included, however, theratio of variable to fixed costs is low.

As a result, the owner may operate the station24 hours a day, seven days a week for a relativelylow cost. Even the extra cost of keeping the sta-tion open between the hours of midnight and6:00 A.M. is minimal. As a result, the extra wages,the electricity, and other variable costs are minorand may be covered by the profits of the extrasales.

Internet StoresStores are flocking to the Internet, making it one

of the fastest-growing areas of business today, andfor reasons largely related to cost. Specifically,many stores are using the Internet because theoverhead, or the fixed cost of operation, is so low.

An individual engaged in e-commerce—electronicbusiness or exchange conducted over the Internet—does not need to spend large sums of money to rent a building and stock it with inventory.Instead, for just a fraction of the cost of a store,the e-commerce business owner can purchase Webaccess along with an e-commerce software package

Costs and Information GoodsInformation goods, rather than industrialgoods, are the key forces in many world mar-kets. What are information goods? Essentially,they are anything that can be digitized—base-ball scores, music, and stock quotes are allinformation goods. The cost structure of infor-mation goods is unusual. Production of infor-mation goods requires high fixed costs but lowmarginal costs. In other words, producing thefirst copy of an information good is costly, butthe cost of reproducing additional copies ismuch less.

INFOBYTEINFOBYTE

Measures of Cost Variable costs represent ex-penses a corporation incurs that change with thatcompany’s level of business activity. Fixed costsrepresent expenses a corporation incurs thatremain relatively stable despite a change in thelevel of that company’s business activity. Expenseitems which generally remain fixed for any givenreporting period include rent, depreciation, prop-erty tax, and executive salaries.


that provides everything from Web catalog pages to ordering, billing, and accounting software. The e-commerce business owner inserts pictures anddescriptions of the products for sale into the soft-ware and loads the program.

When customers visit the “store” on the Web,they see what appears to be a full range of mer-chandise for sale. In some cases, the owner has thegoods in stock, as with Johnelle Lentner’s antiqueauction site. In other cases, the store takes theorders and forwards them to the manufacturer or tospecialty warehouses that handle the shipping.

Measures of RevenueBusinesses use two key measures of revenueto find the amount of output that will pro-

duce the greatest profits. The first is total revenue,and the second is marginal revenue.

The total revenue is the number of units soldmultiplied by the average price per unit. If 7 units aresold at $15 each, the total revenue is $105, as shownin the total revenue column in Figure 5.6. The second,and more important, measure of revenue is marginalrevenue, the extra revenue associated with the pro-duction and sale of one additional unit of output.

The marginal revenues in Figure 5.6 are deter-mined by dividing the change in total revenue bythe marginal product. When a business has noworkers, it produces no output, and it receives norevenue. When it adds the first worker, total outputjumps to 7 units, and $105 of total revenue is gen-erated. Because the $105 is earned from the sale of7 units of output, each unit must have added $15.Therefore, the marginal, or extra, revenue each unitof output brings in is $15.

Keep in mind that whenever an additionalworker is added, the marginal revenue computa-tion remains the same. If the business employs fiveworkers, it produces 90 units of output and gener-ates $1,350 of total revenue. If a sixth worker isadded, output increases by 20 units, and total rev-enues increase to $1,650. To have increased totalrevenue by $300, each of the 20 additional units ofoutput must have added $15.

If each unit of output sells for $15, the marginalor extra revenue earned by the sale of one more unitis $15. For this reason, the marginal revenue appearsto be constant at $15 for every level of output.While marginal revenue is constant in Figure 5.6,this will not always be the case. Businesses often findthat marginal revenues start high and then decreaseas more and more units are produced and sold.

MASTER MARKETERKathryn Leary helps entrepreneurs enter newmarkets. Among the services Leary offers areestablishing contacts and coordinating trademissions.

After viewing the proverbial glass ceiling first-hand at a majority of firms, Leary, 47, felt it wastime to venture off on her own.

“Once I realized the large companies had over-seas offices, it became my goal to go abroad,” Learysays. “But this was denied me. I started my companyto help Americans market in other countries.”

To prepare for doing business in Japan, Learytook language classes to master basic greetings andcommon phrases, studied the culture at the AsiaSociety in New York, subscribed to the interna-tional edition of the Japan Times and other maga-zines and newsletters and read books on Japanesebusiness customs. . . .

—Black Enterprise, August 1999

1. Finding the Main Idea Why did Leary starther own company?

2. Analyzing Information What services doesLeary’s company provide? Why do youthink her service is useful?

Critical Thinking


Marginal AnalysisEconomists use marginal analysis, a type ofcost-benefit decision making that compares

the extra benefits to the extra costs of an action.Marginal analysis is helpful in a number of situa-tions, including break-even analysis and profitmaximization. In each case the process involvescomparing the costs and benefits of decisions thatare made in small, incremental steps.

The break-even point is the total output or totalproduct the business needs to sell in order to coverits total costs. In Figure 5.6, the break-even point isbetween 7 and 20 units of total product, so at leasttwo workers would have to be hired to break even.

A business wants to do more than break even,however. It wants to make as much profit as it can.We know that the business represented in Figure 5.6will break even when it hires the second worker.But, how many workers and what level of outputare needed to generate the maximum profits?

The owners of the business can decide by com-paring marginal costs and marginal revenues. Thebusiness would probably hire the sixth worker, forexample, because the extra output would only cost$4.50 to produce, and would generate $15 in rev-enues. In general, as long as the marginal cost is lessthan the marginal revenue, the business will keephiring workers.

Having made a profit with the sixth worker, thebusiness probably would hire the seventh and eighthworkers. If it hired the ninth worker, however, thecost of the additional output would equal the addi-tional revenue earned when the product was sold.The addition of the ninth worker neither adds to nortakes away from total profits—so the firm would havelittle incentive to hire the tenth worker. If it did, itwould quickly discover that profits would go down,and it would go back to using nine workers.

When marginal cost is less than marginal rev-enue, more variable inputs should be hired toexpand output. The profit-maximizing quantity ofoutput is reached when marginal cost and marginalrevenue are equal. In Figure 5.6, profits are maxi-mized when the ninth worker is hired. Other com-binations may generate equal profits, but no othercombination will be more profitable.


organizer activity on page 127, describe howcost affects total revenue.

2. Key Terms Define fixed cost, overhead, variable cost, total cost, marginal cost, e-commerce, total revenue, marginal rev-enue, marginal analysis, break-even point,profit-maximizing quantity of output.

3. List the four measures of cost.

4. Describe the two measures of revenue.

5. Explain the use of marginal analysis forbreak-even and profit-maximizing decisions.

Applying Economic Concepts6. Overhead How might overhead affect the

price of a new car?

7. Understanding Cause and Effect Many oil-processing plants operate 24 hours a day,using several shifts of workers to maintainoperations. How do you think a plant’sfixed and variable costs affect its decisionto operate around the clock?


Student Web Activity Visit the Economics: Principlesand Practices Web site at epp.glencoe.com and clickon Chapter 5—Student Web Activities for an activityon the operation of a company.



Learning the SkillThere are two types of outlines—formal and

informal. Making an informal outline is similar totaking notes—you write words and phrases needed toremember main ideas. A formal outline has a standardformat. Follow these steps to formally outline material.

• Read the text to identify the main ideas. Labelthese with Roman numerals.

• Write subtopicsunder each mainidea. Label theseideas with capital letters.

• Write supportingdetails for eachsubtopic. Labelthese with Arabicnumerals.

• Each level shouldhave at least twoentries and shouldbe indented fromthe level above.

• All entries use the same grammatical form, whether phrases or complete sentences.

Practicing the SkillOn a separate sheet of paper, copy the following

outline of the main ideas in the first part of Section 1of Chapter 5. Then use your textbook to fill in themissing subtopics and details.

Following the guidelines above, prepare an out-line for Section 3 of Chapter 5.

Practice and assess key social studies skills with theGlencoe Skillbuilder Interactive Workbook, Level 2.

OutliningOutlining may be used as a starting point for a writer. The writer beginswith the rough shape of the material and gradually fills in the details in alogical manner. You may also use outlining as a method of note taking andorganizing information as you read.

I. An Introduction to SupplyA. The Supply Schedule

1.2. Prices and quantities move in

same direction.B. The Individual Supply Curve

1.2.

C. The Market Supply Curve1.2.

D.1.2.

II. Change in SupplyA.B. ProductivityC.D.E. ExpectationsF.G.

Production on theassembly line


S e c t i o n 1

What Is Supply? (pages 113–120)

• Supply is the quantities of output that producers willbring to market at each and every price. Supply canbe represented in a supply schedule, or graphicallyas a supply curve.

• The Law of Supply states that the quantities of aneconomic product offered for sale vary directly withits price. If prices are high, suppliers will offer greaterquantities for sale. If prices are low, they will offersmaller quantities for sale.

• The market supply curve is the sum of the individ-ual supply curves.

• A change in quantity supplied is represented by amovement along the supply curve.

• A change in supply is a change in the quantity thatwill be supplied at each and every price. An increasein supply is presented graphically as a shift of thesupply curve to the right, and a decrease in supplyappears as a shift of the supply curve to the left.

• Changes in supply can be caused by a change in thecost of inputs, productivity, new technology, taxes,subsidies, expectations, government regulations, andnumber of sellers.

• Supply elasticity describes how a change in quantitysupplied responds to a change in price.

• If supply is elastic, a given change in price will cause amore than proportional change in quantity supplied.If supply is inelastic, a given change in price will causea less than proportional change in quantity supplied.If supply is unit elastic, a given change in price willcause a proportional change in quantity supplied.

S e c t i o n 2

The Theory of Production (pages 122–125)

• The theory of production deals with the relationshipbetween the factors of production and the output ofgoods and services.

• The theory of production deals with the short run,a production period so short that only the variableinput (usually labor) can be changed. This contraststo the long run, a production period long enoughfor all inputs—including capital—to vary.

• The Law of Variable Proportionsstates that the quantity of outputwill vary as increasing units of asingle input are added. This lawis presented graphically in theform of a production function.

• The two most important measuresof output are total product andmarginal product, the extra out-put gained from adding one addi-tional unit of input.

• Three stages of production—increasing returns,diminishing returns, and negative returns—showhow marginal product changes when additionalvariable inputs are added. Production takes placein Stage II under conditions of diminishingreturns.

S e c t i o n 3

Cost, Revenue, and ProfitMaximization (pages 127–131)

• Four important measures of cost exist: total cost,which is the sum of fixed cost and variable cost,and marginal cost, which is the increase in totalcost that stems from producing one additional unitof output.

• The mix of variable and fixed costs that a businessfaces affects the way the business operates.

• The key measure of revenue is marginal revenue,which is the change in total revenue when one moreunit of output is sold.

• The profit-maximizing quantity of output occurswhen marginal cost is exactly equal to marginalrevenue. Other quantities of output may yield thesame profit, but none yield more.


Identifying Key TermsOn a separate sheet of paper, write the letter of the key termthat best matches each definition below.

a. depreciation g. production functionb. diminishing returns h. profit-maximizingc. fixed cost i. total costd. marginal analysis j. variable coste. marginal product k. overheadf. marginal revenue l. total product

1. a production cost that does not change as totalbusiness output changes

2. decision making that compares the additional costs with the additional benefits of an action

3. associated with Stage II of production

4. a production cost that changes when outputchanges

5. a graphical representation of the theory of production

6. the additional output produced when one addi-tional unit of input is added

7. change in total revenue from the sale of one addi-tional unit of output

8. the gradual wearing out of capital goods

9. the sum of variable and fixed costs

10. when marginal revenue equals marginal cost

11. total output produced by a firm

12. total fixed costs

Reviewing the FactsSection 1 (pages 113–120)

1. Describe what is meant by supply.

2. Distinguish between the individual supply curveand the market supply curve.

3. Explain what is meant by a change in quantitysupplied.

4. Identify the factors that cause a change in supply.

Section 2 (pages 122–125)

5. Describe the Law of Variable Proportions.

6. Explain the difference between total product andmarginal product.

7. Identify the three stages of production.

Section 3 (pages 127–131)

8. Describe the relationship between marginal costand total cost.

9. Identify four measures of cost.

10. Describe one practical application of cost principles.

Thinking Critically1. Making Comparisons Create a chart like the one

below to help you explain how supply differs fromdemand.

2. Making Generalizations Why might productionfunctions tend to differ from one firm to another?

3. Understanding Cause and Effect Explain whye-commerce reduces fixed costs.

Differences

Supply Demand

Self-Check Quiz Visit the Economics: Principlesand Practices Web site at epp.glencoe.com andclick on Chapter 5—Self-Check Quizzes to preparefor the chapter test.

134 UNIT 2 MICROECONOMICS134 UNIT 2 MICROECONOMICS


Applying Economic Concepts1. Supply According to the Law of Supply, what will

happen to the number of products a firm offers forsale when prices go down? What will happen tothe cost of additional units of production when afirm starts having diminishing returns? What willhappen to the number of products a firm will offerfor sale if its cost of production increases whileprices remain the same?

2. Marginal Analysis Give an example of a recentdecision you made in which you used the tools of marginal analysis.

Math PracticeCreate a supply schedule and a supply graph thatshows the following information: American auto-makers are willing to sell 200,000 cars per year whenthe price of a car is $6,000. They are willing to sell400,000 when the price is $12,000, and 600,000 at a price of $18,000.

Thinking Like an EconomistLabel the following actions according to their place-ment in the stages of production: (a) After manyhours of studying, you are forgetting some of thematerial you learned earlier. (b) You are studying fora test and learning rapidly. (c) After a few hours, youare still learning but not as fast as before.

Technology SkillUsing a Database For one week, record every serviceor job you perform for anyone else. Organize theservices and the amount of time spent on each intotwo columns: Paid Work and Unpaid Work. Use thisinformation to help you build an “employment”database.

1. Define and name the fields in your database. Thefollowing can be used as examples:

Field Name Field TypeJob/Service TextEmployer’s Name TextEmployer’s Phone NumberHourly Wage/Fee NumberHours Worked Number

2. Save the database.

3. Change field size as needed so that all informa-tion in each field is visible.

4. Use the speller, proofread, and preview the data-base. Save the database again.

5. Print your database while in list view.

Outlining On a separate sheet of paper, addsupporting details to the outline of Section 2below.


I. Law of Variable Proportions

A.

1.

2.

B.

1.

2.

II. The Production Function

A.

1.

2.

B.

1.

2.

III. Three Stages of Production

A.

B.

C.


Chap05 Fundamental Economic Concepts

Education

Transcript of Chap05 Fundamental Economic Concepts