chapter 3: supply

Question 1

what is an individual supply curve?

Answer 1

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

Question 2

which way are supply curves typically sloping?

Answer 2

upwards

Question 3

what is the relationship displayed in a supply curve?

Answer 3

quantity produced as a function of price, same as demand curve, but upward sloping instead

Question 4

what is the law of supply?

Answer 4

as price rises, the quantity supplied rises

Question 5

what are homogenous goods?

Answer 5

goods that are virtually identical - perfect substitutes

Question 6

what is a perfectly competitive market?

Answer 6

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

Question 7

what are some things that ruin a market’s perfection?

Answer 7

1) there are only a few buyers/ sellers (monopoly, duopoly, oligopoly)
2) selling a unique product
3) product has loyal customers

Question 8

what are the two sub-categories in marginal costs?

Answer 8

variable costs and fixed costs

Question 9

what is a variable cost?

Answer 9

those costs - like labour and raw material - that vary with the quantity of output you produce

Question 10

what is a fixed cost?

Answer 10

those costs that don’t vary when you change the quantity of output you produce

Question 11

for a firm, when increasing q by one unit, what is MB and MC?

Answer 11

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

Question 12

what is the rational rule for sellers in a competitive firm?

Answer 12

keep producing until price = MC

Question 13

what happens when price = MC?

Answer 13

the supply curve is also your MC curve

Question 14

why are supply curves upward-sloping?

Answer 14

they are upward-sloping because of rising marginal costs (marginal costs of production rise)

Question 15

what is a production function?

Answer 15

describes how inputs (labour, capital (machines), land, and energy) are transferred into an output good

Question 16

what is market supply curve?

Answer 16

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

Question 17

what is the 4 step process for estimating market demand/ supply?

Answer 17

1. survey suppliers/ consumers
2. for each price, add up the total quantity supplied by all sellers
3. scale up
4. plot the total quantity supplied at each price

Question 18

what happens when there is a change in the price?

Answer 18

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

Question 19

what happens when there is an increase in supply?

Answer 19

the curve shifts right

Question 20

what happens when there is a decrease in supply?

Answer 20

the curve shifts left

Question 21

what are the 5 factors that shift the market supply curve?

Answer 21

1. input prices
2. productivity and technology
3. prices of related outputs
4. expectations
5. the type and number of sellers

Question 22

how does input price affected supply?

Answer 22

if the input price increases, the marginal cost increases, so the MC curve shifts left

Question 23

what does productivity growth mean?

Answer 23

producing more output with fewer inputs

Question 24

what drives productivity growth?

Answer 24

technological change

Question 25

how does productivity and technology affect supply?

Answer 25

productivity growth reduces MC of production, so sellers are more willing to supply at any given price, so curve shifts right

Question 26

how do complementary goods affect supply?

Answer 26

complementary goods in production are made together and therefore if the supply of one good increases, the supply of the other good increases

Question 27

how do substitutes in production affect supply?

Answer 27

alternative uses of your resources. your supply of a good will decrease if the price of a substitute in production rises