Economics 2.3

Question 1

what is Supply

Answer 1

THE SUPPLY OF AN INDIVIDUAL FIRM INDICATES THE VARIOUS QUANTITIES OF A GOOD/SERVICE A FIRM IS WILLING AND ABLE TO PRODUCE AND SUPPLY TO THE MARKET FOR SALE AT DIFFERENT POSSIBLE PRICES, DURING A PARTICULAR TIME PERIOD, CETERIS PARIBUS.

Question 2

what is LAW OF SUPPLY

Answer 2

According the the law of supply, there is a positive relationship between the quantity of a good supplied over a particular time period and its price, ceteris paribus: as the price of the good increases, the quantity of the good supplied also increases; as the price falls, the quantity supplied also falls, ceteris paribus.

shows positive relationship between Qs and P

Question 3

what is MARKET SUPPLY

Answer 3

Sum of all individual firms’ supplies for a good. The market supply curve illustrates the law of supply, shown by a positive relationship between price and quantity supplied.

Question 4

Why is Qs independent of price in vertical supply curve?

Answer 4

1. There is a fixed quantity of the good supplied because there is no time to produce more of it.
2. There is a fixed quantity of the good because there is no possibility of ever producing more of it

Question 5

What are the non-price determinants of supply

Answer 5

1. Costs of FOP/production
2. Productivity (technology)
3. Prices of related goods (competitive supply)
4. Prices of related goods (joint supply)
5. Producer (firm) price expectations
6. Government intervention
7. Number of firms
8. ‘Supply shocks’ or sudden unpredictable events

Question 6

consumer surplus

Answer 6

the difference between how much a consumer is at most willing to pay for a good and how much they actually pay

Question 7

producer surplus

Answer 7

the benefit enjoy by producers by receiving a price that is higher than the price they were willing to receive

Question 8

producer surplus

Answer 8

the benefit enjoyed by producers by receiving a price that is higher than the price they were willing to receive

Question 9

social/community surplus

Answer 9

the sum combination of consumer surplus and producer surplus

Question 10

allocative efficiency

Answer 10

achieved when just the right amount of goods/services and produced from society’s point of view so that scarce resources are allocated in the best possible way. it is achieved when, for the last unit produced, P = MC, or more generally if MSB = MSC

Question 11

marginal benefit

Answer 11

the extra/additional benefit enjoyed by consumers that arises from consuming one more unit of output