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Economics > Ch. 5 Supply & Changes in Supply > Flashcards

Ch. 5 Supply & Changes in Supply Flashcards

1
Q

Supply

A

The quantity of a good/service that is available and how much supplies are willing and able to produce and sell at various prices.

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2
Q

Supply Schedule

A

A listing of quantities supplied at various prices.

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3
Q

Supply Curve

A

A graph of the supply curve.

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4
Q

Law of Supply

A

Suppliers will offer more at high prices and less at lower prices (positive relationship/upward slope)
- as price increases, existing firms will produce more in order to earn more $ and new firms will have an incentive to enter the market

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5
Q

Change in Supply

A

A willingness and ability to increase quantity supplied at all price levels.

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6
Q

What are the determinants of supply?

A 
T - technology
I - input costs and availability
G - government influence
E - expectation of future prices
R - related goods prices
S - suppliers (# of firms)
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7
Q

What is technology in terms of supply?

A

It will generally increase productivity (unless breaks down). This includes new production processes.

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8
Q

What is input costs & availability in terms of supply?

A

The costs of production and materials. It is the change in supply due to natural disasters and conflicts.

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9
Q

What is a supply shock?

A

A sudden change.

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10
Q

What is government influence in terms of supply?

A

This is subsidies, taxes and regulations.

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11
Q

Subsidies

A

Government payment that supports a certain business or industry.

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12
Q

Regulation

A

Government intervention that affects the production of a product.

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13
Q

What is expectation of future prices in terms of supply?

A

If suppliers think the prices will go up, they may hold on to some supply. If producers think prices will go down, they may want to sell as much as possible.

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14
Q

What is related goods prices in terms of supply?

A

Firms can use the same resources to produce different goods. If the profit is higher for one product that uses the same input, production will shift to that output.

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15
Q

What is suppliers in terms of supply?

A

Less suppliers, means less supply.

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16
Q

What is elasticity of supply?

A

Shows how sensitive producers are to a change in price.

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17
Q

What is the equation for elasticity of demand?

A

% change of quantity / % change of price

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18
Q

What is inelastic supply?

A

Not responsive to a change in price. (steep curve, vertical)

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19
Q

What is elastic supply?

A

Sensitive to a change in price. (flat curve)

20
Q

What is perfect inelastic?

A

Quantity doesn’t change (vertical line) as there is a set quantity supplied.

21
Q

What determines whether supply is elastic or inelastic?

A

1) Time to adjust
2) Cost of production
3) Availability of inputs (materials)

22
Q

How does time to adjust affect supply?

A

Elastic in the long run. Inelastic in the short run (fixed).

23
Q

How does production cost affect supply?

A

Lower prices are elastic. Higher prices are inelastic.

24
Q

How does availability of inputs affect supply?

A

Elastic means materials are readily available. Inelastic means materials are not readily available.

25
Q

What are the two types of production costs?

A

Fixed costs and variable costs

26
Q

What are fixed costs?

A

Costs that does not change no matter how much is produced.

27
Q

What are variable costs?

A

Costs that change depending on how much is produced.

28
Q

What is total cost?

A

Fixed costs + variable costs

29
Q

What is marginal cost?

A

Additional costs of producing one more unit.

30
Q

What is the equation for marginal cost?

A

(new TC - old TC) / (new output - old output)

31
Q

What is marginal revenue?

A

Additional income a firm earns by selling an additional unit (price of good).

32
Q

How do you ensure maximum profits?

A

Increase production as long as marginal revenue exceeds/equal to marginal costs. Maximum profit is then achieved as there are no missed opportunities.

33
Q

What is total revenue?

A

Price x Quantity

34
Q

What is total profit/loss?

A

Total revenue - total cost

35
Q

What is shutdown decision?

A

If the firm’s total revenue is above its variable cost, it should keep producing so that any profits can go toward paying off production costs. If the firm’s total revenue is below its variable costs, it would be wise to shut the firm down because any more money spent on variable costs would increase your costs.

36
Q

What is total physical product?

A

Total output or quantity produced.

37
Q

What is marginal product?

A

The additional output generated by additional inputs (workers).

38
Q

What is the formula for marginal product?

A

change in total product / change in inputs

39
Q

What is marginal product of labor?

A

The additional output from hiring one more worker.

40
Q

What is increasing marginal returns?

A

The additional output that increases with each additional worker.
- specialization increases efficiency! Divide work.

41
Q

What is diminishing marginal returns?

A

The additional output decreases with each additional worker.
- Each additional worker contributes less to the total output due to less resources.

42
Q

What is negative marginal returns?

A

Production is disrupted and less is produced.

43
Q

What is fixed resources?

A

Resources that don’t change with the amount produced.

44
Q

What are variable resources?

A

Resources that do change as more/less is produced.

45
Q

What is the law of diminishing marginal returns?

A

As a variable resource (workers) are added to fixed resources, the additional output produced from each new worker will eventually fall.

Economics (5 decks)

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