Chapter 4 - Supply Flashcards
What is the goal of a firm?
Maximize profit
What is the economic cost equation?
profit = total revenue - total cost
What is the difference between accounting profit and economic profit?
Accountants use only explicit costs
Economists use both explicit and implicit costs
What is the definition of supply?
Maximum quantity a seller is wiling and able to sell at various prices
What is the law of supply?
Price and Quantity supplied are directly related
What are the two approaches to supply?
Supply from existing stock
Supply with production
What are production costs based on ?
Input prices
Labor productivity
What is the Marginal Product of Labor?
Additional output produced by one more unit of labor
What is the marginal cost of production equation?
Marginal Cost of Production = wage/MPL
What is the Law of Diminishing Returns?
MPL always declines eventually
What are the 6 factors that motivate change in supply?
Input Prices # sellers Expectations Technology Alternative opportunity for profit Taxes
How do input prices effect changes in supply?
When wages go up, cost goes up and supply goes down
When wages go down, cost goes down and supply goes up
How does the number of sellers effect changes in supply?
# sellers increases, supply increases vice versa
How do price expectations effect change in supply?
Expected price increase = decrease in supply
Expected price decrease = increase in supply
How does technology effect change in supply?
Advances in technology lower costs and increase supply
