Econ 101: Chapter 3 Flashcards
Supply
the decisions we make as sellers
individual supply curve
a graph of the quantity that a business plans to sell at each price.
It summarizes one’s selling plans.
The Law of supply
there is a general tendency for the quantity supplied to be higher when the price is higher.
means that supply curves at upward sloping.
Perfect competition
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.
price takers
managers in perfectly competitive markets just take the market price as given and follow along.
Marginal costs include… but…
they include variable costs but exclude fixed costs.
Variable costs
costs such as labour and raw materials that vary with the quantity of output you produce
The Rational Rule for Sellers in Competitive Markets
Sell one more item if the price is greater than (or equal to) the marginal cost.
fixed costs
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
your supply curve =
your marginal cost curve
What leads to rising marginal costs?
diminishing marginal product
why is your supply curve upward sloping?
rising marginal costs.
marginal product
the increase in output that arises from an additional unit of an input
diminishing marginal product
when the marginal product of an input declines as you use more of that input.
Rising input costs leads to…
rising marginal costs
survival of the fittest
managers who make bad decisions will be weeded out; their businesses will close.
Market supply
the total quantity of an item supplied across all firms in the market.
market supply curve
plots the total quantity that the entire market, including all producers, will supply at each price.
build market supply curves by…
adding up the individual supply curves from all potential suppliers at each price.
Price changes result in… (supply curves)
movement along the supply curve (same curve)
movement along the supply curve…
yields a change in the quantity supplied.
Changing market conditions…
causes a shift in the supply curve.
Any factor that changes your marginal costs…
will shift your supply curve.
rightwards shift (supply curve)
increase in supply (at each and every price)
leftwards shift (supply curve)
decrease in supply (at each and every price)
5 factors that shift the supply curve
I, POET
1st factor shifting the supply curve
Input prices
2nd factor shifting the supply curve
Productivity and technology
3rd factor shifting the supply curve
other opportunities and the prices of related outputs
4th factor shifting the supply curve
expectations
5th factor shifting the supply curve
type and number of sellers
Input prices
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.
productivity and technology
productivity growth and technological change can allow businesses to produce more output with fewer inputs.
other opportunities and the prices of related outputs
substitutes in production and complements in production
expectations
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.
types and number of sellers
new businesses entering the market will shift curve to right.
businesses exiting the market will shift the supply curve to the left.
substitutes in production
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)
complements in production
goods that are made/produced together.
supply of a good will increase if the price of a complement in production rises.
