Ch+5.3

ch 5.3 notes and questions

Input Costs Government's influence on supply __Other Influences on supply__ Where do firms produce?
 * any change in the cost of an input used to produce a good, such as raw materials, machinery, or labor will affect supply
 * a fall in the cost of an input will cause an increase in supply at all price levels
 * a supplier sets output at the most profitable level, where price is equal to a marginal cost
 * marginal cost includes the cost of the inputs that go into production, so a rise in the cost of labor or raw materials will translate directly into a higher marginal cost
 * supply falls at each price, and the supply curve shifts to the left
 * Input costs can drop as well, advances in technology can lower production costs in many industries
 * sophisticated robots have replaced many workers on assembly lines and allowed manufacturers to spend less on salaries
 * technology lowers costs and increases supply at all price levels, this effect is seen in a rightward shift in the supply curve
 * the government has the power to affect the supplies of many goods, by raising or lowering the cost of producing goods, the government can encourage or discourage an entrepreneur or an industry within country or abroad
 * one method use by governments to affect supply is to give subsidies to the producers of a good, particularly food
 * subsidy- government payment that supports a business or market
 * the government often pays a producer a set subsidy for each unit of a good produced
 * A government can reduce the supply of some goods by placing an excise tax on them
 * Excise Tax - a tax on the production adds extra costs by adding an extra cost for unit sold
 * an excise tax increases production costs by adding an extra cost for each unit sold
 * excise taxes are sometimes used to discourage the sale of goods that government thinks are harmful to the public good, like cigarettes alcohol, cigarettes and high pollutant gasoline
 * Regulation - government intervention in a market that affects the price, quantity, or a quality of a good
 * If a seller expects the price of a good to rise in the future the seller will store the goods now in order to sell more in the future
 * expectations of higher prices will reduce the supply now and increase supply later, and expectations of lower prices will have the opposite effect
 * Inflation is a condition of rising prices, during periods of inflation, the value of cash in a person's pocket decreases from day to day as prices rise
 * When faced with inflation, suppliers prefer to hold on to goods that will maintain their value rather than sell them for cash that looses its value rapidly
 * if more suppliers enter a market, to produce a certain good,the market supply of a good will rise, and the supply curve will shift to the right
 * on the other hand if suppliers stop producing a good and leave the market, the supply will decline
 * A firm will locate close to input suppliers when inputs, such as raw materials, are expensive to transport
 * other firms locate close to inputs that cannot be transported all the time

Questions?
 * 1) Are subsidies necessary for business or market? why or why not?
 * 2) lets say an input cost doesnt change, what will happen?
 * 3) where exactly do firms produce and where are they usually located or take place?