Bella Crespin-Robelo March 18, 2025

Period 1 Economics

Essential Question: What are the basic differences between supply and demand?

Lesson 1: What is Supply?

Supply – The quantity of goods and services Producers are more willing to supply goods
that producers are willing and able to offer at
different prices over a given period. when prices are high because they can make
Law of Supply – The principle that states as
price increases, the quantity supplied more profit.
increases, and as price decreases, the
quantity supplied decreases. Several factors, such as production costs and
Quantity Supplied – The specific amount of a
good that a producer is willing and able to technology, influence supply.
supply at a particular price.
Supply Schedule – A table that shows the Law of Supply – States that as price
relationship between the price of a good and
the quantity a producer is willing to supply. increases, quantity supplied increases, and
Supply Curve – A graph that represents the
supply schedule, illustrating the direct as price decreases, quantity supplied
relationship between price and quantity
supplied. decreases.
Market Supply Curve – A graph that shows
the total quantity of a good supplied by all The relationship between price and quantity
producers at various prices.
Change in Quantity Supplied – A movement supplied is direct (positive correlation).
along the supply curve caused by a change in
price. Higher prices give producers an incentive to
Change in Supply – A shift of the entire
supply curve due to factors other than price, produce more, while lower prices discourage
such as technology or production costs.
production.

Assumes that all other factors remain

constant (ceteris paribus).

Supply Schedule – A table that lists the

quantity of a good a producer is willing to

supply at different price levels.

 - Shows how supply changes in response to

different price points.

Used to create supply curves and analyze

producer behavior.

Helps businesses and policymakers

understand market trends.

Supply Curve – A graph that represents the

supply schedule, showing the relationship

between price and quantity supplied. -

Always slopes upward from left to right,

indicating that as price rises, supply

increases.

A movement along the curve occurs when

price changes.

A shift in the curve happens due to changes

in production costs, technology, or other

external factors.

Summary-

The law of supply explains that producers are more willing to supply goods when prices are
higher and less willing when prices are lower. Supply schedules and supply curves are used
to visualize this relationship. While price changes cause movement along the supply curve,
other factors such as production costs and technology shifts can shift the entire curve.
Lesson 2- Theory of Production
Theory of Production – The relationship
between the factors of production (land, labor, The Theory of Production describes how
capital) and the output of goods and services. inputs, such as land, labor, and capital,
Short Run – A production period so brief that combine to produce output. Firms seek to
only variable inputs (such as labor) can be optimize production by adjusting their inputs.
changed. In the short run, firms can only adjust variable
Long Run – A production period long enough inputs like labor or raw materials, but fixed
for firms to adjust all resources, including inputs such as machinery and land remain
capital. unchanged. The long run allows firms to
Total Product – The total output of goods or adjust both fixed and variable inputs,
services produced by a firm. providing greater flexibility in responding to
Marginal Product – The additional output changes in market conditions.
produced when one more unit of input (like
labor) is added. The Total Product refers to the total output
Law of Variable Proportions – The principle produced by a firm from its inputs. As more
stating that as one input is varied while others inputs are added, the total product increases,
remain constant, the rate of output will but how much it increases depends on the
change. law of marginal product. Marginal Product
Stages of Production – The three phases of measures the additional output generated by
production: increasing returns, diminishing adding one more unit of input, such as an
returns, and negative returns. additional worker. Initially, the marginal
product rises, but after a certain point, it
begins to decline as more workers are added.

The Law of Variable Proportions states that

as one input (such as labor) is increased
while other inputs (like machinery) stay
constant, the marginal product of labor will
initially increase, then decrease after
reaching a point of diminishing returns. The
law describes three distinct stages of
production:

-Increasing Returns: In this stage, adding

more input leads to a greater increase in
output, as workers become more productive.

-Diminishing Returns: As more units of the

variable input are added, the marginal
product of labor starts to decline. While
output still increases, the rate at which it
increases slows.

-Negative Returns: At this stage, the addition

of more inputs leads to inefficiency, and total
output begins to decrease. Too many workers
or inputs are being used, leading to
overcrowding or mismanagement.
 The stages of production are important for
businesses in determining the optimal
amount of input to use for maximizing
efficiency and profitability. Firms aim to
operate in the first stage or early in the
second stage, avoiding the negative returns
phase where additional inputs reduce overall
output.

Summary-

The Theory of Production explains how changes in inputs affect output in the short run and
long run. The Law of Variable Proportions shows that adding more inputs can increase
productivity but eventually leads to diminishing and negative returns. Understanding these
stages helps businesses optimize production efficiency.

Lesson 3- Cost, Revenue, and Profit Maximization

Cost – The expenses incurred in producing

goods and services, including fixed and Cost and Profit: Costs are essential for
variable costs. understanding a firm's financial decisions.
Fixed Costs – Costs that do not change with Fixed costs do not change with the level of
the level of output, such as rent and salaries. production, such as rent or insurance.
Variable Costs – Costs that vary directly with Variable costs increase as production
the level of production, such as materials and increases, such as raw materials or labor
labor. costs. The total cost is the sum of both fixed
Total Cost – The sum of fixed and variable and variable costs.
costs.
Marginal Cost – The additional cost incurred Revenue and Marginal Revenue: Revenue
by producing one more unit of a good or refers to the money earned from selling
service. goods and services. Total revenue is
Revenue – The income generated from the calculated as the price per unit multiplied by
sale of goods and services. the quantity sold. Marginal revenue is the
Total Revenue – The total income from sales, additional revenue generated from selling one
calculated by multiplying the price per unit by more unit of output.
the quantity sold.
Marginal Revenue – The additional revenue Marginal Cost: Marginal cost refers to the
generated from selling one more unit of additional cost incurred to produce one more
output. unit of output. Firms seek to produce at the
Profit Maximization – The process of point where marginal cost equals marginal
adjusting output to the level where marginal revenue to maximize profit.
revenue equals marginal cost, maximizing
total profit. Profit Maximization: Profit maximization
Break-even Point – The level of production at occurs when a firm produces the quantity of
which total revenue equals total cost, output where marginal revenue equals
resulting in zero profit. marginal cost. This is the most efficient
production level for achieving maximum
profit.

Break-even Point: The break-even point

occurs when total revenue equals total costs,
meaning the firm has neither a profit nor a
loss. Firms aim to surpass the break-even
point to achieve profitability.

Summary:

In this lesson, the focus is on understanding costs, revenues, and how they influence profit
maximization. Firms must balance their fixed and variable costs with their revenues to
determine the optimal level of production. Profit maximization occurs when marginal revenue
equals marginal cost, ensuring the most efficient use of resources. The break-even point is
important for understanding the level of sales required to cover all costs.