Supply

Question 1

What’s a supply schedule?

Answer 1

shows how much of a good or service would be supplied at different prices

Question 2

What’s a supply curve?

Answer 2

shows the quantity supplied at various prices

Question 3

What’s the quantity supplied?

Answer 3

quantity that producers are willing and able to sell at a particular price of that good/ service

Question 4

Factors that shift the supply curve

Answer 4

1) input prices
2) technology
3) the prices of related goods or services
4) expectations
5) the number of producers

Question 5

Describe changes on input prices

Answer 5

increase in the price of an input makes the production more costly for sellers
-> supply decreases

a fall in the price of an input makes the production less costly for sellers
-> supply increases

Question 6

Describe changes in technology

Answer 6

new better technology enables producers to spend less on inputs yet still producing the same amount of output
-> lowers costs and increases supply

Question 7

Describe changes in the price of related goods or services- complement

Answer 7

an increase in the price of one complement good causes an increase in the supply of the other

Question 8

Describe the changes in the price of related goods or services- substitute

Answer 8

an increase in the price of one substitute good will encourage the increase in supply of that substitute good, which can cause a decrease in its supply

Question 9

Describe changes in expectations

Answer 9

the expectation of a higher price for a good in the future decrease current supply of the good- if sellers can store the good
- sellers will change their current offerings on anticipation of the direction of future prices on order to obtain the highest possible price

Question 10

Describe changes in number of producers

Answer 10

entry implies more sellers in the market
-> increasing supply

exit implies fewer sellers in the market
-> decreasing supply

Question 11

Describe the market supply curve

Answer 11

the horizontal sum of the individual supply curves of all producers

Question 12

Describe market equilibrium

Answer 12

when Qs=Qd at a certain price
-> the amount consumers would purchase at this price is matched exactly by the amount producers wish to sell

Question 13

Define equilibrium price (aka market clearing price)

Answer 13

the price at which consumer would purchase is matched exactly by the amount producers wish to sell

Question 14

Describe equilibrium quantity

Answer 14

the quantity of the good or service bought and sold at that price is the equilibrium quantity

Question 15

What happens if the price is above the equilibrium level?

Answer 15

creates a surplus which will push the price down until it reaches the equilibrium price

Question 16

Why does the market price fall if it’s above the equilibrium price?

Answer 16

there’s a surplus of a good when the quantity supplies exceeds the quantity demanded. Surplices occur when the price is above its equilibrium level

surpluses don’t last- sellers will reduce price so they move goods off the shelves

Question 17

What happens when there’s a decrease in supply on the supply curve?

Answer 17

creates a shortage at that price
movement along the demand curve to a higher equilibrium price and lower equilibrium quantity

Question 18

What happens if supply and demand both increase

Answer 18

quantity increases, but price change is ambiguous

Question 19

What happens if supply increases and demand decreases

Answer 19

price decrease but quantity change is ambiguous

Question 20

What happens if supply decreases and demand increases?

Answer 20

price increases but quantity change is ambiguous

Question 21

What happens if supply decreases and demand decreases?

Answer 21

quantity decreases, but price change is ambiguous

Question 22

What happens if the decrease in demand is relatively larger than the decrease is supply?
What happens if the decrease in supply is large relative to the decrease in demand?

Answer 22

the equilibrium quantity and price fall
the equilibrium prices rises

Question 23

What happens if the increase in demand is relatively larger than the increase in supply?
What happens if the increase in supply is large relative to the increase in demand?

Answer 23

The equilibrium quantity and price rise
The equilibrium quantity rises, equilibrium price falls