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Econ Higher > Supply > Flashcards

Supply Flashcards

1
Q

How do we distinguish between different types of firms?

A

Competition

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2
Q

How do you measure competition?

A

The availability of substitutes

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3
Q

How do you calculate accountant profit?

A

Total revenue - total cost

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4
Q

How do you calculate total revenue?

A

P*Q

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5
Q

How do you calculate total cost?

A

wages + rent + interest

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6
Q

How do you calculate economic profit?

A

Total revenue - total OPPORTUNITY cost

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7
Q

How do you calculate total opportunity cost?

A

wages + rent + interest + opportunity cost

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8
Q

What do you do if economic profit is 0?

A

You stay in the market, this is called normal profit.

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9
Q

What is normal profit?

A

The minimum amount required to stay. TR = TC

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10
Q

What is it called if economic profit is greater than 0?

A

Abnormal profit
Supernormal profit
Excess profit
Economic rent

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11
Q

Do we always look at total revenue?

A

No we don’t like to look at total so we look at marginal revenue and marginal cost.

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12
Q

What is marginal revenue?

A

The extra revenue you receive for each extra unit consumed or supplied.

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13
Q

MR =

A

MR = ∆TR/∆Q

so MR = ∆P*Q/∆Q the ∆Q cancel out
so MR = P

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14
Q

When P>MC?

A

Stay

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15
Q

When P=MC?

A

Stay

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16
Q

When P

A

Out

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17
Q

When price increases what happens to quantity supplied?

A

Quantity supplied increases

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18
Q

What is quantity supplied?

A

The number of units you are willing to supply at a given price.

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19
Q

What is the relationship between P and Qs?

A

There is a positive relationship between P and Qs. (Law of supply)

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20
Q

What is the law of supply?

A

The law of supply means there is a positive relationship between price and quantity supplied, Ceteribus peribus.

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21
Q

Other names of the supply curve?

A

MC
Opportunity cost
Willingness to accept
Minimum supply price

It also shows normal profit

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22
Q

How can you read the supply graph?

A
  1. The cost of the 10th unit is $5
  2. If the price is $5, u am willing to produce 10 units.
  3. The minimum amount I will accept for the 10th unit is $5.
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23
Q

Why are you willing to supply the 10th unit at $5, if the cost of the 10th unit is $5?

A

Because on the line you are making normal profit (0 profit) so you are not losing. The cost includes your opportunity cost.

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24
Q

What is the total cost on the graph?

A

The area below the supply curve.

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25
Q

What is the total revenue on the graph?

A

The total area below the graph and to the left of the graph.

26
Q

What is the profit on the graph?

A

The TR - TC
So a + b - b
So a
This is abnormal profit

27
Q

Factors that effect supply:

A
  1. Price of the good itself
  2. Price of related goods
  3. Expected future price
  4. Number of suppliers
  5. Cost of production
  6. Technology
28
Q

What is the relationship between quantity supplied and the price of the good itself?

A

Positive. (Law of supply)

29
Q

What is the relationship between quantity supplied and the price of the substitute in production?

A

Negative

If you increase the price of a car the quantity supplied of cars will increase so the supply of trucks will decrease.

30
Q

What is a compliment in production?

A

A biproduct

Cows and leather for example

31
Q

What is the relationship between quantity supplied and the price of compliments in production?

A

Positive

If the price of beef goes up the quantity supplied of beef goes up and the supply of leather increases

32
Q

What is the relationship between quantity supplied and the expected future price?

A

Negative

If the expected future price goes up then the quantity supplied now will go down

33
Q

What is the relationship between quantity supplied and the number of suppliers?

A

Positive, obviously.

More suppliers, more supply

34
Q

What is the relationship between quantity supplied and the cost of production?

A

Negative

If the cost of production goes up you will produce less.

35
Q

What is the relationship between quantity supplied and technology?

A

Positive

If technology improves you are able to supply more b

36
Q

What do we look at with change in Qs?

A

Cause:
Change in the price of the good itself only
Graph:
It is shown as a movement along the graph

37
Q

How is an increase in Qs shown on the graph?

A

Movement up to the right

38
Q

How is decrease in Qs shown on the graph?

A

A movement down to the left.

39
Q

What do we look at with change in S?

A

Cause:
A change in any other factors but price
Graph:
A shift of the entire supply curve

40
Q

How do you know whether it is a movement or a shift?

A

If something on the axis changes it will cause a movement. If something not on the axis changes it will cause a shift.

41
Q

How do you show a decrease in supply on a graph?

A

A shift up to the left

42
Q

How do you show an increase in supply on a graph?

A

A shift down to the right

43
Q

Where is E on a graph showing S and D?

A

Where S and D meet

44
Q

Where are PE and QE on a graph showing S and D?

A

The level that price is at E

The level that Q is at E

45
Q

When are we at equilibrium with PE and QE?

A

As long as market failure and government intervention are absent we are at E.

46
Q

What is disequilibrium?

A

When we move away from E

47
Q

Can excess demand/supply last?

A

Yes, with government intervention. If they place a price ceiling.

48
Q

What happens when there is excess demand?

A

Consumers are unhappy so they bid up the price.

49
Q

What does bidding up the price lead to?

A

Decrease in Qd (movement up left)
Increase in Qs (movement up right)
They are moving to E

50
Q

What is it called when

Qs > Qd

A

Excess supply or surplus

51
Q

How do you calculate surplus?

A

Qs - Qd

52
Q

What happens when there is surplus?

A

Producers are unhappy so they bid down the price.

53
Q

What does bidding down the price lead to?

A

Decrease in Qs (movement down left)
Increase in Qd
(movement down right)

54
Q

What can bidding down lead to?

A

Government intervention - a price floor.

55
Q

What is the relationship between (PE and QE) and demand?

A

There is a positive relationship.

56
Q

What is the relationship between PE and QE and supply?

A

If there is a change in supply, QE will move in the same direction and PE will move in the opposite direction.

57
Q

What happens when D and S change at the same time in the same direction?

A

QE will follow that direction and PE will be undetermined.

58
Q

What happens when D and S change at the same time in opposite directions?

A

PE will follow the direction and QE will be undetermined.

59
Q

How do you get from an individual demand curve to a market demand curve?

A

A market demand curve is a horizontal summation of individual demand curve.

60
Q

How do you calculate consumer surplus?

A

The willingness to pay - the actual price

The area under the demand, above the price.

61
Q

What is a substitute in production?

A

Two goods that are made of the same thing that the producer can switch to making.

Econ Higher (23 decks)

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