Ch. 4 Supply

Question 1

Define the law of supply

Answer 1

As the price of a good/service/resource rises, the quantity supplied will increase, and vice versa. All else held constant

Question 2

Define diminishing marginal productivity

Answer 2

The principle that if at least on input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

Question 3

Define supply schedule

Answer 3

a table representation of the relationship between the price of a good/service/resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant

Question 4

Define supply curve

Answer 4

a graphical representation of the representation of the relationship between the price of a good/service/resource and the quantities

Question 5

Define quantity supplied

Answer 5

The quantity of a good, service or resource that producers are willing and able to supply at a given price

Question 6

On a supply graph, what are the axes and where are they located?

Answer 6

Price goes on the vertical axis, quantity goes on the horizontal

Question 7

How is the law of increasing opportunity costs part of the explanation behind the law of supply?

Answer 7

All else held constant, firms will be willing and able to produce more output only when prices rise, because their opportunity cost of production is increasing.

Question 8

Give an example of how the law of increasing opportunity costs is part of the law of supply?

Answer 8

In the Bakken oil region when gas prices were low, there were 66 rigs in that area. But when gas prices increased, there were over 200. But when gas prices lowered, oil companies shut down the least productive rigs first. These rigs had a higher marginal cost, and as prices fell they were too expensive to operate

Question 9

When firms have increasing opportunity costs in production, what happens?

Answer 9

An increase in prices allows them to increase their production, and falling prices require then to decrease production.

Question 10

When economists refer to the supply of a good, service or resource, they are referring to what?

Answer 10

The sum of the individual supply curves added together.

Question 11

Define Market supply

Answer 11

the overall or total supply of a good/service/resource. It represents the horizontal summation of the quantities supplied by individuals, firms, states or even nations at each price over a fixed time period, all else held constant

Question 12

What causes the supply curve to shift to the right?

Answer 12

For example, if the price of oil (an input into gas production) decreases, firms will be able to produce more gasoline regardless of price because of the cost of producing gas. As a result, the supply of gasoline increases and the supply curve shifts to the right.

Question 13

What causes the supply curve to shift to the left?

Answer 13

If the price of milk (an input into cheese production) increases, cheese production costs more, no matter what the market price of cheese is. As a result, the supply of cheese decreases and the supply curve shifts to the left

Question 14

Define a shift in supply

Answer 14

A change in the quantity of a good/service supplied at every price. Graphically, an increase in supply is represented by a rightward shift of the supply curve, while a decrease in supply is represented by a leftward shift of the supply curve.

Question 15

Define movement along a supply curve

Answer 15

A change in the quantity of a good/service supplied due to a change in its price. Graphically, this change is represented as a movement along an existing supply curve

Question 16

Give an example of the difference between supply and quantity supplied?

Answer 16

If the price of portobello mushrooms increases, all else held constant, the quantity supplued will increase as producers respond to the higher price. But if a new fertilizer is discovered that doubles portobello production, the new fertilizer will increase the quantity supplied at every price. Shifting the supply curve to the right.

Question 17

A change in price, all else held constant, generates what?

Answer 17

A change in quantity supplied, not a change in supply.

Question 18

Changes in what shifts the supply curve?

Answer 18

Nonprice determinants

Question 19

What are taxes and subsidies place on consumers likely to do?

Answer 19

Shift the demand curve because they affect the willingness and ability of individuals to purchase products

Question 20

What are taxes and subsidies place on businesses likely to do?

Answer 20

Shift the supply curve

Question 21

For a $1 subsidy the supply will shift to the right until?

Answer 21

The vertical distance between S1 and S2 is exactly equal to $1

Question 22

What is another term for resources?

Answer 22

Factors of production

Question 23

What is the difference between supply and production?

Answer 23

Production refers to the quantity of output firms produce. Supply refers to the quantity of output firms are willing and able to provide to the market at different prices.