Chapter 3: Show Me the Money (The Law of Supply) 3.1- Explain why ...

Chapter 3: Show Me the Money (The Law of Supply) 3.1- Explain why marginal costs are ultimately opportunity costs 3.2- Define sunk costs and explain why they do no influence smart, forward-looking decisions. 3.3-Decreibe the relationship between price and quantity supplied, and identify the roles of higher profits and marginal opportunity costs of production. 3.4- Explain the difference between a change in quantity supplied and a change in supply, and list all five factors that change supply. 3.5- Explain Elasticity of supply and how it helps businesses avoid disappointed customers. 3.1 What does it really cost? Costs are Opportunity Costs 1. What is the real cost to a business of hiring or purchasing any input? 2. Microsoft released a limited supply of Xbox 360’s in 2005 with a list price— or “real” price of--$400. The unit’s immediately started selling on eBay and other online auction websites for far more than $400. What do you think determined the “real” price of an Xbox? 3. If a recession makes it much harder for workers to find better-paying jobs, what might happen to Paola’s labor costs? 3.2 Forget it, it’s History: Sunk Costs Don’t matter For Future Choices 1. What aren’t sunk costs part of opportunity costs of forward-looking decisions? 2. Suppose you have just paid your bus fare. A friend in a car pull up and offers you a ride. Explain how you would decide between staying on the bus or taking the ride, and the influence of the paid fare. 3. If you bought a $100 for a coarse, and then dropped out after the tuition refund date, is that $100 a sunk cost? Explain your answer. 3.3 More for More Money: The Law of Supply 1. What does Paola need a higher price to be willing to supply more body piercing? 2. If you could spend the next hour studding economics or working at your parttime job, which pays $10 an hour, what is your personal opportunity cost, in dollars, of studying. 3. Suppose the PPF parlor was producing only piercings and no fingernail sets. If Paola wanted to start producing some fingernail sets, which staff person would she switch to fingernails first? Who would she switch last? Explain your answers.

3.4 Changing the Bottom Line: What can change supply?

1. Explain the difference between a change in quantity supplied and a change in supply; distinguish the five factors that can change supply. 2. Suppose you are working at two part-time jobs, babysitting and pizza delivery. After many young babysitters start offering to work for less, your babysitting clients will now only pay you $6 per hour instead of $8 per hour. What will happen to your supply of hours for delivering pizzas? Explain. 3. When the price of nail set’s fall, none of Paola’s hard dollar cost’s change. Is there an effect on the quantity of piercings Paola chooses to supply? 3.5 How far will you jump for the Money? Price elasticity of Supply 1. Explain the relationship between price and quantity supplied for inelastic supply and elastic supply. 2. If your boss offers you a 20 percent raise, and in response you work 10 percent more hours, how would you describe your price elasticity of labor supply? 3. Your business is about to launch an advertising campaign boasting about your current low prices. You are hoping the ads will bring in many more customers. Explain why you need to be concerned about your elasticity of supply. True/False, Multiple Choice, and Short answer practice pp. 77-85