econChap3 Flashcards
What is an individual supply curve?
A graph that summarizes the quantity a business plans to sell at each price, typically upward-sloping.
Where are price and quantity plotted on a supply curve?
Price is plotted on the vertical axis, and quantity supplied is plotted on the horizontal axis.
What does an upward-sloping supply curve indicate?
It indicates that as the price increases, the quantity supplied increases, and vice versa.
What is the Law of Supply?
The law of supply states that the quantity supplied of a good is directly related to its price, holding other factors constant.
How can you discover your individual supply curve?
By planning and determining the quantity you would supply at different prices, then plotting these quantities against the prices.
What is marginal cost?
The additional cost incurred from producing one more unit of a good or service.
What is the Rational Rule for Sellers in Competitive Markets?
Sell one more item if the price is greater than or equal to the marginal cost.
Why is the individual supply curve also your marginal cost curve?
Because it plots the price at which each additional unit is supplied, reflecting the marginal cost of producing that unit.
What causes the individual supply curve to be upward-sloping?
Diminishing marginal product and rising input costs, which increase marginal costs as production increases.
What decision should Shell make when the price of gas is $1.20 per litre?
According to the Rational Rule for Sellers, Shell should produce up to the point where price equals marginal cost, ensuring that they maximize profits.
What is market supply?
The total quantity of a good supplied by all firms in the market at each price.
How is market supply calculated?
By summing the quantity supplied by each individual supplier at each price level.
What does a rightward shift in the supply curve signify?
An increase in supply, meaning at every price, a larger quantity is supplied.
What does a leftward shift in the supply curve signify?
A decrease in supply, meaning at every price, a smaller quantity is supplied.
What are the five factors that shift the supply curve, remembered by the acronym I POET?
Input prices, Productivity and technology, Prices of related outputs, Expectations, Type and number of sellers.
How does an increase in input prices affect the supply curve?
It increases marginal costs, shifting the supply curve to the left (decreasing supply).
How does an improvement in productivity and technology affect the supply curve?
It decreases marginal costs, shifting the supply curve to the right (increasing supply).
What is a substitute-in-production?
A good that can be produced using the same resources as another good, where a rise in the price of one increases the supply of the other.
What is a complement-in-production?
Goods that are produced together, where an increase in the price of one can increase the supply of the other.
How do expectations about future prices affect current supply?
If future prices are expected to rise, current supply may decrease as firms store goods; if future prices are expected to fall, current supply may increase to sell before prices drop.
What are network and congestion effects?
Network effects occur when the value of a product increases as more people use it, while congestion effects occur when the value decreases as more people use it.
How does the number of sellers in a market affect the supply curve?
An increase in the number of sellers shifts the market supply curve to the right (increasing supply), while a decrease shifts it to the left (decreasing supply).
What is the difference between a movement along the supply curve and a shift of the supply curve?
A movement along the supply curve is caused by a change in price, while a shift of the supply curve is caused by changes in other factors like input prices or technology.
Why do supply curves slope upward?
Because of rising marginal costs due to diminishing marginal product and rising input costs.
How can managers infer competitors’ marginal costs?
By observing their supply decisions, since the supply curve is also the marginal cost curve.
How did COVID-19 affect the supply and demand for gasoline and e-commerce?
Demand for gasoline decreased due to fewer travels, while demand for e-commerce increased as more people stayed home.
How does the Rational Rule for Sellers maximize profits?
By ensuring that each additional unit sold brings in revenue at least equal to its marginal cost, thus increasing overall profit until price equals marginal cost.
Why are perfectly competitive firms price-takers?
Because in a perfectly competitive market, all firms sell identical goods and are too small to influence the market price, so they must accept the prevailing market price.
How does an upward-sloping supply curve relate to marginal costs?
Because the supply curve reflects the marginal cost curve, which typically rises as more units are produced due to increasing marginal costs.
Explain the term ‘price-taker’ in a perfectly competitive market.
A firm that must accept the prevailing market price for its product because it cannot influence the price on its own.
