Chapter 5- Supply

Government influence

may encourage/discourage an entrepreneur or industry

variable costs

costs that rise or fall depending on how much is produced

Gov. Import Restrictions

restrictions cause a decrease in the supply of restricted goods

subsidies

a government payment that supports a business or market

supply curve

a graph of the quantity supplied of a good by all suppliers at different prices

elasticity of supply

a measure of the way quantity supplied reacts to a change in price

Future expectations of prices

expectations of higher prices will reduce supply now and increase supply later (expectations of lower prices have the opposite effect)

long run

firms are more flexible, so supply can become more elastic

taxes

government can reduce the supply of some goods by placing an excise tax on them (a tax on the production/sale of a good)

Global Economy

supply of imported goods/services has an impact on the supply of the same goods/services here

quantity supplied

term used by economists to describe how much of a good is offered for sale at a specific price

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

marginal product of labor

the change in output from hiring on additional unit labor or worker

marginal cost

the cost of producing one more unit of a good

supply schedule

a chart that lists how much of a good all suppliers will offer at different prices

fixed cost

a cost that does not change, no matter how much of a good is produced

short run

a firm cannot easily change its output level, so supply is inelastic

input

any change in the cost of an input such as raw materials, machines, or labor, will affect supply

input cost

as input cost increases, firm's marginal costs also increase, decreasing profitability and supply

the law of supply

as prices increase, quantity supplied increases. As price falls, quantity supplied falls.

total production

business owners must consider how the number of workers they hire will affect their total production

What are diminishing marginal returns of labor? a. some workers increase output but others have the opposite effect b. additional workers increase total output but at a decreasing rate c. only a few workers will have to wait their turn to be productive d. additional workers will be more productive

b. additional workers increase total output but at a decreasing rate

When government actions cause the supply of a good to increase, what happens to the supply curve for that good? a. it shifts to the left b. it shifts to the right c. it reverses direction d. the supply curve is unaffected

b. it shifts to the right

what happens when the price of a good with an elastic supply goes down? a.existing producers will expand and some new producers will enter the market b.some producers will produce less and others will drop out of the market c. existing firms will continue their usual output but will earn less d. new firms will enter the market as older ones drop out

b. some producers will produce less and other will drop out of the market

what is the law of supply? a. the lower the price, the larger the quantity supplied b. the higher the price, the larger the quantity supplied c. the higher the price, the smaller the quantity supplied d. the lower the price, the more manufacturers will produce the good

b. the higher the price, the larger the quantity supplied

How does a firm set its total output to maximize profit? a. set production so that total revenue plus costs is greatest b. set production at the point where marginal revenue is smallest c. determine the largest gap between total revenue and total cost d. determine where marginal revenue and profit are the same

c. determine the largest gap between total revenue and total cost

What effect does a rise in the cost of raw materials have on the cost of a good? a. a rise in the cost of raw materials lowers the overall cost of production b. the good becomes cheaper to produce c. the good becomes more expensive to produce d. this does not have any effect on the eventual price of a good

c. the good becomes more expensive to produce

technology

can greatly decrease costs and increase supply

rising prices

draw new firms into a market and add to the quantity supplied of a good

total cost

equals fixed costs plus variable costs

Number of suppliers

if more firms enter a market, the market supply of the good will rise. If firms leave the market, supply will decrease.

inelastic

if supply is not very responsive to changes in price

elastic

if supply is very sensitive to changes in price

output level

level at which marginal revenue is equal to marginal cost

diminishing marginal returns

occur when marginal production levels decrease with new investment

increasing marginal returns

occur when marginal production levels increase with new investment

negative marginal returns

occur when the marginal product of labor becomes negative

regulation

occurs when the government steps into a market to affect price, quantity, or quality of a good. (typically raises costs)

increased revenue

when prices are high, increased revenues are promised and therefore encourage firms to produce more