Chapter 5
Section 1 Understanding Supply
1. How does the quantity supplied of a good with a large elasticity of supply react to a price change?
2. State whether you think the supply of the following services is elastic or inelastic, and explain why: a) a lawn-care service b) making movies c) professional baseball
3. When the price of gold rises, what will happen to the market for second-hand jewelry? Explain your answer in economic terms.
Section 2 Costs of Production
1. How would it help the company where you worked to maximize profits if you received advanced training?
2. Explain whether each of these expenses of a textile mill is a fixed cost or a variable cost, and why. a) repairs to a leaking roof b) cotton c) food for the mill’s cafeteria d) night security guard e)electricity
3. Why would a company produce more units of a good if its marginal cost is less than its marginal revenue? Why would the company not simply produce more and more units? Use economic terms to answer this question.
Section 3 Changes in Supply
1. How affect do each of the following have on the supply curve? a) subsidy b) excise tax c) government regulations
2. If regulation increases price and decreases supply, why does the government issue regulations?
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