Module 4 (Exam 2)

Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for ethanol lead to higher corn prices, this will

decrease the supply of soybeans.

Movement along Supply Curve

Although a change in price of a good or service typically causes a change in quantity supplied or a movement along the supply curve for that specific good or service, it does not cause the supply curve itself to shift.

Supply

the amount of some good or service a producer is willing to supply at each price

The table lists the opportunity cost of production for five sellers in a market. Suppose each of the five sellers can supply at most one unit of the good; then the market quantity supplied is exactly 3 if the price is

$1,170.

The table lists the opportunity cost of production for five sellers in a market. If the market price is $1,100, the combined total cost of all participating sellers

$2,250.

A cold snap in Florida destroys one-third of the orange crop in the United States. How would this be reflected in our supply curve analysis?

A decrease in supply.

The figure above is the market for college degrees. Which of the following is most likely to cause the supply curve to shift from S1 to S2?

A flood of refugees from outside the United States that have PhDs in STEM disciplines.

The table list five sellers and their cost per unit. Suppose the market price of their good is $775. Which of the sellers would be willing to supply the product at that price?

Catherine ($750) and Jackson ($500)

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?

Egg supply will decrease.

Inputs/Factors of Production

Goods and services are produced using combinations of labor, materials, and machinery

If Harry is paid $25,000 to sell his crop of tomatoes even though he would have been willing to have sold the crop for as little as $20,000, this indicates that

Harry received $5,000 of producer surplus from the transaction.

The above figure depicts the market for Uber drivers. What is most likely to cause a shift from S2 to S1?

Higher costs of auto insurance.

If price rises, what happens to supply of a product?

It does not change.

If price rises, what happens to quantity supplied of a product?

It increases.

The table above lists the opportunity cost of production for five sellers in a market. If the market prices falls from $775 to $749, who is still selling in the market?

Jackson. ($500)

calculate producer surplus

Producer surplus = 1/2 x (base of triangle x height of triangle)

In the figure above, if the initial demand and supply for soybeans were D1 and S1, how would a decrease in the cost of producing soybeans affect the market for soybeans?

Supply would increase to S2, price would decrease to P0, and the quantity would increase to S.

How will a reduction in the price of cotton influence the market for blue jeans?

The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right.

Suppose a major civil war broke out in an important oil-producing nation. What impact would this have on the market for oil?

The supply of oil would fall.

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

The supply of wheat would fall.

Which of the following would decrease the supply of sugar?

The tariff (tax) on imported sugar increases.

Farmers can produce wheat and/or corn. What will happen in the wheat market if there is an increase in price of corn?

Wheat supply will decrease.

In the figure above, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream?

a decrease in the price of milk, an ingredient used to produce ice cream

In Figure 11, suppose D1 and S1 indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S1 to S2?

a decrease in the price of wood, a resource used to produce kitchen cabinets

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

a decrease in the supply of automobiles, which is a shift to the left of the supply curve.

If a major hurricane were to destroy the sugarcane crop in Louisiana, there would be

a decrease in the supply of sugarcane.

Which of the following would reduce the supply of tennis shoes?

a new tax imposed on the producers of tennis shoes

Which of the following would increase the supply of laptop computers?

a technological improvement that lowers the cost of producing laptop computers

An important assumption that is made when constructing a supply schedule is

all other determinants of supply are held constant.

Which of the following will reduce the supply of motorcycles?

an increase in taxes imposed on motorcycle producers

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease?

an increase in the price of plastic used to make garden hoses

Supply Curve Shifts

change in the quantity supplied at every price

Production Costs

costs incurred by a business from manufacturing a product or providing a service

Supply Curve

graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis.

In which statement(s) are "supply" and "quantity supplied" used correctly? (I) "An increase in the price of computers will increase the quantity supplied of computers." (II) "A technological advance that lowers the cost of producing computers will increase the supply of computers."

in both statements I and II

In which statement(s) is "supply" used correctly? (I) "An increase in the price of eggs will increase the supply of eggs." (II) "As the cost of producing eggs rises, the supply of eggs will tend to fall."

in statement II only

Which of the following would most likely increase the supply of beef?

lower prices of grains used to feed cattle

According to the law of supply,

more of a good will be offered by suppliers as the price rises

The total economic cost of producing a good or service is called the

opportunity cost of production.

When economists say the quantity supplied of a product has decreased, they mean the

price of the product has fallen, and consequently, suppliers are producing less of it.

When economists say the quantity supplied of a product has increased, they mean the

price of the product has risen, and consequently, suppliers are producing more of it.

Ceteris paribus (other things being equal), an increase in the price of a good will cause the

producer surplus derived from the good to increase.

Bill is willing to cut lawns for a minimum of $200 a week. He is, however, paid $250 for the same service by a lawn maintenance company. This is an example of

producer surplus.

According to the law of supply,

producers are willing to supply larger amounts of a good as its price increases.

An increase in the supply of the product implies that

producers will now charge a lower price for a given quantity of output.

According to the law of supply, as the price of a good decreases

sellers will produce less of the good.

According to the law of supply, as the price of a good increases,

sellers will produce more of the good.

Supply Schedule

shows the quantity supplied at a range of different prices

When economists say the supply of a product has increased, they mean the

supply curve has shifted to the right.

A decrease in the price of leather used to make shoes would cause the

supply of shoes to increase.

Producer Surplus

the producer's gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity

A decrease in supply means that

the quantity supplied at each price will decrease.

The figure shows conditions in the market for beef. A reduction in the price of the grain used to feed cattle results in

the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.

When economists say the supply of a product has decreased, they mean that

the supply curve has shifted to the left.

Law of Supply

~a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied ~assumes that all other variables that affect supply are held constant

Factors that affect supply

~changes in weather or other natural conditions ~new technologies for production ~some government policies

Quantity Supplied

~the amount of a good that sellers are willing and able to sell ~A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied