1. How does time influence the elasticity of supply? Give one example of a good with elasticity of supply and an example of a good without elasticity of supply. 2. Knowing that businesses have a profit motive, explain why and how a business calculates is operating costs.

3. List and explain three ways the government can influence the supply of a good.

4. In a few sentences, describe how a change in input costs (positive and negative!) changes the supply of a good.

1.The price elasticity of supply (PES) is the measure of the responsiveness in quantity supplied (QS) to a change in price for a specific good (% Change QS / % Change in Price). There are numerous factors that directly impact the elasticity of supply for a good including stock, time period, availability of substitutes, and spare capacity. The state of these factors for a particular good will determine if the price elasticity of supply is elastic or inelastic in regards to a change in price.

2. Profit is the revenue remaining after all costs are paid. These costs include labor, materials, interest on debt, and taxes. Profit is usually used when describing business activity. But everyone with an income has profit. It's what's left over after paying the bills.

Profit is the reward to business owners for investing. In small companies, it's paid directly as income. In corporations, it's often paid in the form of dividends to shareholders.  

When expenses are higher than revenue, that's called a loss. If a company suffers losses for too long, it goes bankrupt.

3. The government can influence supply by adding excise taxes on materials, making production costs too high, so producers decrease supply.

4. A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus—no other economically relevant factors are changing. If other factors relevant to supply do change, then the entire supply curve will shift. A shift in supply means a change in the quantity supplied at every price.

Say we have an initial supply curve for a certain kind of car. Now imagine that the price of steel—an important ingredient in manufacturing cars—rises so that producing a car becomes more expensive.

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