Econ 101: Chapter 3

Question 1

Supply

Answer 1

the decisions we make as sellers

Question 2

individual supply curve

Answer 2

a graph of the quantity that a business plans to sell at each price.
It summarizes one’s selling plans.

Question 3

The Law of supply

Answer 3

there is a general tendency for the quantity supplied to be higher when the price is higher.
means that supply curves at upward sloping.

Question 4

Perfect competition

Answer 4

all firms in the market are selling an identical good; there are many sellers and many buyers, each of whom is small relative to the size of the market.

Question 5

price takers

Answer 5

managers in perfectly competitive markets just take the market price as given and follow along.

Question 6

Marginal costs include… but…

Answer 6

they include variable costs but exclude fixed costs.

Question 7

Variable costs

Answer 7

costs such as labour and raw materials that vary with the quantity of output you produce

Question 8

The Rational Rule for Sellers in Competitive Markets

Answer 8

Sell one more item if the price is greater than (or equal to) the marginal cost.

Question 9

fixed costs

Answer 9

costs that don’t vary when you change the quantity of output you produce. You have to pay these costs whether or not you expand your production

Question 10

your supply curve =

Answer 10

your marginal cost curve

Question 11

What leads to rising marginal costs?

Answer 11

diminishing marginal product

Question 11

why is your supply curve upward sloping?

Answer 11

rising marginal costs.

Question 12

marginal product

Answer 12

the increase in output that arises from an additional unit of an input

Question 13

diminishing marginal product

Answer 13

when the marginal product of an input declines as you use more of that input.

Question 14

Rising input costs leads to…

Answer 14

rising marginal costs

Question 15

survival of the fittest

Answer 15

managers who make bad decisions will be weeded out; their businesses will close.

Question 16

Market supply

Answer 16

the total quantity of an item supplied across all firms in the market.

Question 17

market supply curve

Answer 17

plots the total quantity that the entire market, including all producers, will supply at each price.

Question 18

build market supply curves by…

Answer 18

adding up the individual supply curves from all potential suppliers at each price.

Question 19

Price changes result in… (supply curves)

Answer 19

movement along the supply curve (same curve)

Question 20

movement along the supply curve…

Answer 20

yields a change in the quantity supplied.

Question 21

Changing market conditions…

Answer 21

causes a shift in the supply curve.

Question 22

Any factor that changes your marginal costs…

Answer 22

will shift your supply curve.

Question 23

rightwards shift (supply curve)

Answer 23

increase in supply (at each and every price)

Question 24

leftwards shift (supply curve)

Answer 24

decrease in supply (at each and every price)

Question 25

5 factors that shift the supply curve

Answer 25

I, POET

Question 26

1st factor shifting the supply curve

Answer 26

Input prices

Question 27

2nd factor shifting the supply curve

Answer 27

Productivity and technology

Question 28

3rd factor shifting the supply curve

Answer 28

other opportunities and the prices of related outputs

Question 29

4th factor shifting the supply curve

Answer 29

expectations

Question 30

5th factor shifting the supply curve

Answer 30

type and number of sellers

Question 31

Input prices

Answer 31

when your suppliers change the prices of your inputs, your marginal costs will change (curve shift)
- consider foreign exchange rates if your inputs are produced internationally.

Question 32

productivity and technology

Answer 32

productivity growth and technological change can allow businesses to produce more output with fewer inputs.

Question 33

other opportunities and the prices of related outputs

Answer 33

substitutes in production and complements in production

Question 34

expectations

Answer 34

if you expect the price of a good to rise in the next year, you can increase profits by storing it and selling it next year.

Question 35

types and number of sellers

Answer 35

new businesses entering the market will shift curve to right.

businesses exiting the market will shift the supply curve to the left.

Question 36

substitutes in production

Answer 36

alternative uses of your resources.

supply will decrease if the price of a substitute in production increases (opportunity cost of producing this good increases, increasing marginal costs)

Question 37

complements in production

Answer 37

goods that are made/produced together.

supply of a good will increase if the price of a complement in production rises.