This document discusses the roles of producers and consumers in a market economy. It defines key concepts like costs, price, revenue, and profit. It explains that profit is calculated by subtracting total costs from total revenue. It also describes how changes in production costs can affect profits, prices, and supply. Specifically, rising costs tend to decrease profits and lead to higher prices, while falling costs tend to increase profits and lead to lower prices. A change in the cost of production also influences the quantity supplied.

1. Role of Producers & Consumers in a Market Economy EPF2e. How Costs & Revenue Affect Profit & Supply

2. Profit is an incentive and reward for business owners. to survive, a business must earn a profit. 2

3. Essential question: What is the difference between cost & price? 3

4. Cost and Price Cost – is the money spent for the inputs used (e.g. labor, raw materials, transportation, energy) to produce a good or service Price – is the amount consumers pay for a good or service 4

5. Essential question: What is the difference between revenue and profit? 5

6. Revenue and Profit Revenue - is the income generated by the sale of goods and services Revenue = price x quantity Profit - is the amount remaining when all costs are subtracted from all revenues Profit = Total Revenue – Total Cost 6

7. Essential question: How is profit calculated? 7

8. Profit Formula Profit is the amount remaining when all costs are subtracted from all revenues. Profit = Total Revenue – Total Cost 8

9. Essential question: How can changes in the costs of production affect profits and the price of the goods or services produced? 9

10. Essential question: How do changes in costs of production affect the quantity of a good or service that will be produced? 10

11. When costs of inputs rise: A. profit will fall B. or the price of the good or service will be increase and sales may decrease For example, when the cost of lumber goes up, homebuilder profits will fall or the price of houses will go up 11

12. When costs of inputs decrease: Profits can increase Or the price of the good or service can be decreased and sales may increase For example, when the costs of lumber goes up, homebuilder profits will fall or the price of houses will go up 12

13. Supply Refers to the quantity of a good or service that will be brought o market at every price at a given time When cost of production rises, supply will decrease When cost of production decreases, supply will increase 13

14. Summary Rising costs tend to decrease profits and lead to higher prices. Falling costs tend to increase profits and lead to lower prices. A change in the cost of production influences how much will be supplied. 14