EC201 Chapter 3 Key Concepts

individual supply curve

A graph plotting the quantity of an item that a business plans to sell at each price.

shift in the supply curve

A movement of the supply curve itself.

movement along the supply curve

A price change causes movement from one point on a fixed supply curve to another point on the same curve.

decrease in supply

A shift of the supply curve to the left.

increase in supply

A shift of the supply curve to the right.

complements in production

Goods that are made together. Your supply of a good will increase if the price of a complement-in-production rises.

perfect competition

Markets in which 1) all firms in an industry sell an identical good; and 2) there are many buyers and sellers, each of whom is small relative to the size of the market.

A perfectly competitive market is a market in which all firms in an industry sell a(n) _____ good, and there are _____, each of whom is small relative to the size of the market.

identical; many buyers and sellers

The individual supply curve is _____ meaning that when the price _____, the quantities supplied would _____.

upward sloping; increases; increase

When existing businesses leave the market, they _____ the total quantity supplied at each price, shifting the supply curve to _____.

decrease; the left

What are 2 reasons why the market supply curve slopes upward?

1. A higher price leads individual businesses to supply a larger quantity 2. A higher price means more businesses are supplying their goods and services; a lower price means fewer businesses are doing so

Supply curves slope upward because of rising marginal costs due to...

1. Diminishing marginal product 2. Rising input costs

What 5 factors shift the supply curve?

1. Input prices 2. Productivity and technology 3. Prices of related outputs 4. Expectations 5. The type and number of sellers

substitutes in production

Alternative uses of your resources. Your supply of a good will decrease if the price of a substitute-in-production rises.

rational rule for sellers in competitive markets

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

price-takers

Someone who decides to charge the prevailing price and whose actions do not affect the prevailing price.

change in the quantity supplied

The change in quantity associated with movement along a fixed supply curve.

marginal product

The increase in output that arises from an additional unit of an input, like labor.

diminishing marginal product

The marginal product of an input declines as you use more of that input.

law of supply

The tendency for the quantity supplied to be higher when the price is higher.

fixed costs

Those costs that don't vary when you change the quantity of output you produce.

variable costs

Those costs that vary with the quantity of output you produce. * ex: labor and raw materials

To maximize your profits, keep applying the rational rule for sellers, continuing to produce until...

price = marginal cost

The individual supply curve slopes

upward

When you draw an individual supply curve, price goes on the _____ and quantity is on the _____.

vertical axis; horizontal axis

When your suppliers increase the prices of your inputs, they increase your _____, and this will shift your supply curve to _____.

marginal costs; the left

market supply curve

A graph plotting the total quantity of an item supplied by the entire market, at each price.

When your suppliers decrease the prices of your inputs, they decrease your _____, and this will shift your supply curve to _____.

marginal costs; the right