econChap3

Question 1

What is an individual supply curve?

Answer 1

A graph that summarizes the quantity a business plans to sell at each price, typically upward-sloping.

Question 2

Where are price and quantity plotted on a supply curve?

Answer 2

Price is plotted on the vertical axis, and quantity supplied is plotted on the horizontal axis.

Question 3

What does an upward-sloping supply curve indicate?

Answer 3

It indicates that as the price increases, the quantity supplied increases, and vice versa.

Question 4

What is the Law of Supply?

Answer 4

The law of supply states that the quantity supplied of a good is directly related to its price, holding other factors constant.

Question 5

How can you discover your individual supply curve?

Answer 5

By planning and determining the quantity you would supply at different prices, then plotting these quantities against the prices.

Question 6

What is marginal cost?

Answer 6

The additional cost incurred from producing one more unit of a good or service.

Question 7

What is the Rational Rule for Sellers in Competitive Markets?

Answer 7

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

Question 8

Why is the individual supply curve also your marginal cost curve?

Answer 8

Because it plots the price at which each additional unit is supplied, reflecting the marginal cost of producing that unit.

Question 9

What causes the individual supply curve to be upward-sloping?

Answer 9

Diminishing marginal product and rising input costs, which increase marginal costs as production increases.

Question 10

What decision should Shell make when the price of gas is $1.20 per litre?

Answer 10

According to the Rational Rule for Sellers, Shell should produce up to the point where price equals marginal cost, ensuring that they maximize profits.

Question 11

What is market supply?

Answer 11

The total quantity of a good supplied by all firms in the market at each price.

Question 12

How is market supply calculated?

Answer 12

By summing the quantity supplied by each individual supplier at each price level.

Question 13

What does a rightward shift in the supply curve signify?

Answer 13

An increase in supply, meaning at every price, a larger quantity is supplied.

Question 14

What does a leftward shift in the supply curve signify?

Answer 14

A decrease in supply, meaning at every price, a smaller quantity is supplied.

Question 15

What are the five factors that shift the supply curve, remembered by the acronym I POET?

Answer 15

Input prices, Productivity and technology, Prices of related outputs, Expectations, Type and number of sellers.

Question 16

How does an increase in input prices affect the supply curve?

Answer 16

It increases marginal costs, shifting the supply curve to the left (decreasing supply).

Question 17

How does an improvement in productivity and technology affect the supply curve?

Answer 17

It decreases marginal costs, shifting the supply curve to the right (increasing supply).

Question 18

What is a substitute-in-production?

Answer 18

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.

Question 19

What is a complement-in-production?

Answer 19

Goods that are produced together, where an increase in the price of one can increase the supply of the other.

Question 20

How do expectations about future prices affect current supply?

Answer 20

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.

Question 21

What are network and congestion effects?

Answer 21

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.

Question 22

How does the number of sellers in a market affect the supply curve?

Answer 22

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).

Question 23

What is the difference between a movement along the supply curve and a shift of the supply curve?

Answer 23

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.

Question 24

Why do supply curves slope upward?

Answer 24

Because of rising marginal costs due to diminishing marginal product and rising input costs.

Question 25

How can managers infer competitors’ marginal costs?

Answer 25

By observing their supply decisions, since the supply curve is also the marginal cost curve.

Question 26

How did COVID-19 affect the supply and demand for gasoline and e-commerce?

Answer 26

Demand for gasoline decreased due to fewer travels, while demand for e-commerce increased as more people stayed home.

Question 27

How does the Rational Rule for Sellers maximize profits?

Answer 27

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.

Question 28

Why are perfectly competitive firms price-takers?

Answer 28

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.

Question 29

How does an upward-sloping supply curve relate to marginal costs?

Answer 29

Because the supply curve reflects the marginal cost curve, which typically rises as more units are produced due to increasing marginal costs.

Question 30

Explain the term ‘price-taker’ in a perfectly competitive market.

Answer 30

A firm that must accept the prevailing market price for its product because it cannot influence the price on its own.