Economics Module 4: Supply

The ______________ of the supply curve is driven by the ______________ of the PP

shape; slope

Static efficiency

- resources are allocated efficiently at a point in time

The slope of the PPF is (negative/positive)

negative

When do sellers switch the goods they are producing on the PPF?

when they can match earnings

Perfectly elastic supply curve is

- a horizontal line - Ep = inifinite

3 Factors that Drive Economic Growth

1. Increased Capital 2. Process Innovation 3. Product Innovation

Variables effecting the shift of the Market Supply Curve

1. Prices of Input 2. Technological Changes 3. Price of Related Goods 4. Number of Firms 5. Expected Future Prices

Formula for Opportunity Cost

= product given up/ product obtained

An outward shift of a nation's production possibilities frontier represents A. economic growth. B. an impossible situation. C. a situation in which a country produces more of one good and less of another. D. rising prices of the two goods on the production possibilities frontier model.

A

In February, market analysts predict that the price of titanium will rise in March. What happens in the titanium market in February, holding everything else constant? A. The supply curve shifts to the left. B. The supply curve shifts to the right. C. The demand curve shifts to the left. D. The quantity of titanium demanded and the quantity of titanium supplied both increase.

A

In a production possibilities frontier model, a point ________ the frontier is productively inefficient. A inside B. outside C. at either intercept of D. along

A

A decrease in the price of GPS systems will result in A. a decrease in the demand for GPS systems. B. a smaller quantity of GPS systems supplied. C. an increase in the supply of GPS systems. D. a larger quantity of GPS systems supplied.

B

If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced. A. non-linear B. linear C. bowed in D. bowed out

B

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced A. a decrease in the quantity supplied. B. a decrease in supply. C. an increase in supply. D. an increase in the quantity supplied.

B

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 The opportunity cost for Jeff to pick a bushel of apples is A. 3 B. 0.5 C. 0.25 D. 6 E. 2

B

The attainable production points on a production possibilities curve are A. the points outside the area enclosed by the production possibilities frontier. B. the points along and inside the production possibility frontier. C. the points along the production possibilities frontier. D. the horizontal and vertical intercepts.

B

If firms do not increase their quantity supplied when price changes, then supply is A. elastic. B. perfectly elastic. C. perfectly inelastic. D. relatively inelastic.

C

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is A. perfectly elastic. B. elastic. C. relatively inelastic. D. unit elastic.

C

Price elasticity of supply is used to gauge A. how responsive sales are to a change in input prices. B. how responsive suppliers are to changes in future prices. C. how responsive suppliers are to price changes. D. how responsive suppliers are to a change in demand.

C

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 The opportunity cost for Bree to make a taco is A. 12 B. 0.25 C. 0.5 D. 4 E. 6

C

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product. A. 0.2; The product is inelastic. B. 50%; The product is inelastic. C. 0.5; The product is inelastic. D. 2; The product is elastic.

C

The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about? A. 6.7 percent B. 60 percent C. 15 percent D. impossible to determine without additional information

C

What combinations along the PPF is best?

Cannot be determined without more information

Assembly lines are an example of: A. All of these B. Product innovation C. Capital investment D. Process innovation

D

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is A. perfectly elastic. B. relatively inelastic. C. unit elastic. D. elastic.

D

Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil? A. The elasticity coefficient is likely to be lower in the long run than in the short run. B. The elasticity coefficient is unstable in the long run because oil supplies may be depleted. C. The elasticity coefficient approaches 0 in the long run as supplies are depleted. D. The elasticity coefficient is likely to be higher in the long run than in the short run.

D

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 Justin has a A. a comparative advantage and an absolute advantage in making shirts. B. a comparative advantage but not an absolute advantage in making shirts. C. a comparative advantage and an absolute advantage in making pants. D. a comparative advantage but not an abolute advantage in making pants. none of these.

D

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services? A. Supply is relatively inelastic. B. Supply is unit-elastic. C. Supply is perfectly inelastic. D. Supply is perfectly elastic.

D

What is the difference between an "increase in supply" and an "increase in quantity supplied"? A. There is no difference between the two terms; they both refer to a shift of the supply curve. B. There is no difference between the two terms; they both refer to a movement along a given supply curve. C. An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased. D. An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

D

Why has the number of people living on farms gone down so drastically from 1900? A. Investment in capital such as tractors B. Process innovations such as herd immunization C. Process innovations such as mechanized planting and harvesting D. All of these

D

All else equal, as the price of a product falls, the quantity supplied increases. True False

F

T/F Efficient production can be achieved through central authority

False

What does production require to be well defined?

a time frame

If sellers think the price of their product will be higher in the future then, supply now will _______________, and supply in the future will _____________

decrease; increase

What causes available resources of an economy to increase?

increase in labor and capital stock

What happens to the PPF as you add more and more producers?

it gradually smoothes out.

Supply curve for most products is ________________ over a longer period of time, and _____________ for short periods of time

inelastic; elastic

Efficient production requires using the ____________________ opportunity cost and gradually moving to _________________ opportunity costs

least; higher

Old firms exiting a market shifts the supply curve

left

The demand curve is downward sloping, therefore the price elasticity of demand can be

negative

When demand increases, the amount by which price increases depends on the

price elasticity of demand.

New firms entering a markets shifts the supply curve

right

If an individual has a comparative advantage in making a product they should

specialize in that activity.

A supply curve is _______________ sloping

upward

How do governments achieve efficient production?

using markets

What is the importance of Specialization in Production?

- Specialization in production allows workers to become more efficient.

Perfectly inelastic supply curve is

- a vertical line - Ep = 0

Quantity supplied definition

- amount of a good a firm is willing or able to sell at a given price

Change in supply refers to

- amount of supply offered by sellers - affected by many variables - leads to shifts in supply curve

Which combinations on the PPF are efficient? Why?

- combinations ON the PPF - because they use all available resources and the fewest amount of possible resources to produce a given output

Production Possibility Frontier (PPF)

- curve showing the maximum attainable combinations of two goods that can be produced with available resources

supply curve definition

- graph plotting the supply schedule

Price of Related Goods

- if price of substitute increases the supply of alternative good decreases - if price of substitute decreases, the supply of alternative increases - if price of compliment increases supply for both increase - if price of compliment decreases supply for both decrease

price elasticity of supply

- measures responsiveness of change in quantity supplied to a change in price

Change in quantity supplied refers to

- movement along the supply curve - refers to changes in prices

supply definition

- number of units a seller is willing to offer for sale at various prices.

Positive Technological Change

- occurs when a firm can produce a larger number of outputs using the same number of inputs - increases productivity - shifts curve right

Negative Technological Change

- occurs when a firms produces a less amount of output using the same number of inputs - productivity decreases - shifts supply curve left

Increasing Marginal Opportunity Cost

- occurs when you move down the PPF when it is bowed out - an increase in one good requires larger and larger decreases in the other good because some workers and resources are better equipped for the "other" good.

Economic Growth

- outwards shift in the PPF - allows the economy to increase production of goods increasing the standard of living.

Dynamic efficiency

- resources are allocated over a period of time.

Combined, what do increased capital and innovations do to the PPF and opportunity cost?

- shifts the PPF outward - drives down opportunity cost

law of supply definition

- states that holding all else constant, the increase in the price of a product will lead to an increase in the quantity supplied, and the decrease in the price of a product will lead to a decrease in the quantity supplied

supply schedule definition

- table showing the relationship between price of the product and the quantity supplied

Comparative Advantage

- when an individual/firm has the ability to produce a good at a lower opportunity cost than competitors.

Absolute Advantage

- when an individual/firm has the ability to produce more of a good than competitors using the same amount of resources

Prices of Input

- when price of input increases, the cost of production increases, and the supply will decrease shifting curve left - when price of input decreases, cost of production decreases, and the supply will increase shifting supply curve right

2 Reasons Production gets Concentrated:

1. Economic Specialization and Repetition 2. Comparative Advantage

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this? A. There is a decrease in the supply of pool maintenance services. B. There is a decrease in the demand for pool maintenance services. C. There is an increase in the supply of pool maintenance services. D. There is a decrease in the quantity of pool maintenance services supplied.

A

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 Dylan has a Selected Answer: A. a comparative advantage and an absolute advantage in making shirts. B. a comparative advantage but not an absolute advantage in making shirts. C. a comparative advantage and an absolute advantage in making pants. D. a comparative advantage but not an abolute advantage in making pants. none of these.

A

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 Jeff has A. a comparative advantage and an absolute advantage in picking cherries. B. a comparative advantage but not an absolute advantage in picking cherries. C. a comparative advantage and an absolute advantage in picking apples. D. a comparative advantage but not an abolute advantage in picking apples. none of these.

A

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 The opportunity cost for Taylor to pick a bushel of cherries is A. 4 B. 8 C. 2 D. 0.5 E. 0.25

A

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase? A. a decrease in the price of cattle B. an increase in the price of sheep feed C. an increase in the price of sheep D. an increase in the demand for cattle

A

Which of the following is a process innovation? A. self checkout lines B. airports C. Lasik eye surgery D. smartphones

A

What is the basis for trade?

Comparative advantage

An increase in the price of off-road vehicles will result in A. a smaller quantity of off-road vehicles supplied. B. an increase in the demand for off-road vehicles. C. a decrease in the supply of off-road vehicles. D. a larger quantity of off-road vehicles supplied.

D

An increase in the price of pineapples will result in A. a smaller quantity of pineapples supplied. B. a decrease in the demand for pineapples. C. an increase in the supply of pineapples. D. a larger quantity of pineapples supplied.

D

Economic decline (negative growth) is represented on a production possibilities frontier model by the production possibility frontier A. shifting outward. B. becoming flatter. C. becoming steeper. D. shifting inward.

D

If opportunity costs are constant, the production possibilities frontier would be graphed as A. a ray from the origin. B. a negatively sloped curve bowed in toward the origin. C. a positively sloped straight line. D. a negatively sloped straight line.

D

If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture? A. The supply curve would shift to the right. B. The demand curve would shift to the left. C. The demand curve would shift to the right. D. The supply curve would shift to the left.

D

If, in the market for oranges, the supply has increased then A. there has been a movement downwards along the supply curve for oranges. B. there has been a movement upwards along the supply curve for oranges. C. the supply curve for oranges has shifted to the left. D. the supply curve for oranges has shifted to the right.

D

In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States? A. The demand curve shifted to the right. B. The demand curve shifted to the left. C. The supply curve shifted to the right. D. The supply curve shifted to the left.

D

Which combinations on the PPF are attainable?

combinations ON and INSIDE

A demand curve is ______________ sloping

downward

Individuals following self interest and responding to incentive provided by price generate

efficient outcomes in our economy

The supply curve is upward sloping, therefore the price elasticity of supply is

positive

T/F If we allow people to supply what they want the economy will produce the items using the lowest opportunity cost suppliers.

True

T/F The more resources devoted to an activity, the smaller the payoff to devoting additional resources to that activity

True

T/F Movements along the supply curve correspond to movements on the PPF?

T

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 The producer with the least opportunity cost of making a taco is A. the producer who gives up the fewest enchiladas to make a taco. B. the producer who can make the most enchiladas per taco given up. C. the producer who can make the most tacos. D. the producer who can make the fewest enchiladas. E. the producer who can make the most enchiladas per taco given up AND the producer who can make the most tacos.

A.

Which of the following statements is true? A. Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product. B. Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others. C. Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task. D. Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.

A.

What happens to the PPF when the amount of available resources increases?

The PFF shifts outward allowing more production of goods

A supply schedule A. is the relationship between the supply of a product and the cost of producing the product. B. is a table that shows the relationship between the price of a product and the quantity of the product supplied. C. is a curve that shows the relationship between the price of a product and the quantity of the product supplied. D. is a table that shows the relationship between the price of a product and the quantity of the product that producers and consumers are willing to exchange.

B

If in the market for peaches the supply curve has shifted to the left, A. the quantity of peaches supplied has increased. B. the supply of peaches has decreased. C. the quantity of peaches supplied has decreased. D. the supply of peaches has increased

B

The supply curve for watches A. is downward sloping. B. shows the relationship between the price of watches and the quantity of watches supplied. C. shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase. D. shows the supply of watches consumers are willing and able to buy at any given price.

B

Which of the following is an example of capital? A. Washington, D.C. B. Kyle Field C. self checkout lines D. smartphones

B

Which of the following would cause a decrease in the supply of milk? A. an increase in the number of firms that produce milk B. an increase the price of a product that producers sell instead of milk C. a decrease in the price of milk D. an increase in the price of cookies (assuming that milk and cookies are complements)

B

You have an absolute advantage whenever you A. can produce something at a lower opportunity cost than others. B. can produce more of something than others with the same resources. C. prefer to do one particular activity. D. are better educated than someone else.

B

Comparative advantage means the ability to produce a good or service A. at a lower selling price than any other producer. B. at a higher profit level than any other producer. C. at a lower opportunity cost than any other producer. D. of a higher quality than any other producer.

C

In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant? A. The supply curve shifts to the left. B. The quantity of platinum demanded and the quantity of platinum supplied both increase. C. The supply curve shifts to the right. D. The demand curve shifts to the right.

C

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if A. supplier expectations about future prices change. B. prices of substitutes in production change. C. the price of the good changes. D. the cost of producing the good changes.

C

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 Will has A. a comparative advantage and an absolute advantage in making tacos. B. a comparative advantage but not an absolute advantage in making tacos. C. a comparative advantage and an absolute advantage in making enchiladas. D. a comparative advantage but not an abolute advantage in making enchiladas. none of these.

C

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 The opportunity cost for Justin to make a pair of pants is A. 4 B. 1.5 C. 0.5 D. 8 E. 2

C

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 Taylor has A. a comparative advantage and an absolute advantage in picking cherries B. a comparative advantage but not an absolute advantage in picking cherries. C. a comparative advantage and an absolute advantage in picking apples. D. a comparative advantage but not an abolute advantage in picking apples. none of these.

C

Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-6. Which of the following statements is A. Serena has an absolute advantage in making both products. B. Haley has an absolute advantage in making necklaces and Serena in making bracelets. C. Haley has an absolute advantage in making bracelets and Serena in making necklaces. D. Haley has an absolute advantage in making both products.

C

Which of the following was not mentioned as a driver of economic growth? A. Process innovation B. Capital investment C. Increased demand D. Product innovation

C

An increase in the quantity of a product supplied is caused by an increase in the price of the product. True False

T

Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price. True False

T

Serena Haley Bracelets 8 9 Necklaces 16 12 Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Refer to Table 2-6. What is Haley's opportunity cost of making a necklace? A. 3/4 of a bracelet B. 3 bracelets C. 2 necklaces D. 1 1/3 necklaces

a