chapter 3: supply Flashcards
what is an individual supply curve?
a graph plotting the quantity of an item that a business plans to sell at each price
the supply curve visually summarizes the selling plans of a business, and how those plans vary with price
same as MC curve
which way are supply curves typically sloping?
upwards
what is the relationship displayed in a supply curve?
quantity produced as a function of price, same as demand curve, but upward sloping instead
what is the law of supply?
as price rises, the quantity supplied rises
what are homogenous goods?
goods that are virtually identical - perfect substitutes
what is a perfectly competitive market?
a perfectly competitive market is a market in which
1) all firms in an industry sell an identical good
2) there are many buyers and sellers each of whom is small relative to the size of the market
what are some things that ruin a market’s perfection?
1) there are only a few buyers/ sellers (monopoly, duopoly, oligopoly)
2) selling a unique product
3) product has loyal customers
what are the two sub-categories in marginal costs?
variable costs and fixed costs
what is a variable cost?
those costs - like labour and raw material - that vary with the quantity of output you produce
what is a fixed cost?
those costs that don’t vary when you change the quantity of output you produce
for a firm, when increasing q by one unit, what is MB and MC?
MB: price of good
MC: change in variable costs, and therefore, change in total cost because only the variable costs change, fixed costs do not change
what is the rational rule for sellers in a competitive firm?
keep producing until price = MC
what happens when price = MC?
the supply curve is also your MC curve
why are supply curves upward-sloping?
they are upward-sloping because of rising marginal costs (marginal costs of production rise)
what is a production function?
describes how inputs (labour, capital (machines), land, and energy) are transferred into an output good
what is market supply curve?
a graph plotting the total quantity of an item supplied by the entire market, at each price
individual supply curves are the building blocks of market supply
what is the 4 step process for estimating market demand/ supply?
- survey suppliers/ consumers
- for each price, add up the total quantity supplied by all sellers
- scale up
- plot the total quantity supplied at each price
what happens when there is a change in the price?
there is a change in the quantity supplied, not a change in the supply, so there is simply a move along the existing supply curve
what happens when there is an increase in supply?
the curve shifts right
what happens when there is a decrease in supply?
the curve shifts left
what are the 5 factors that shift the market supply curve?
- input prices
- productivity and technology
- prices of related outputs
- expectations
- the type and number of sellers
how does input price affected supply?
if the input price increases, the marginal cost increases, so the MC curve shifts left
what does productivity growth mean?
producing more output with fewer inputs
what drives productivity growth?
technological change
