Chp. 3-ECN
Rational Rule for sellers in competitive markets
sell one more item if the price is greater than (or equal to) the marginal cost
When plotting a supply curve
the quantity supplied goes on the horizontal axis.
Diminishing marginal product leads to
rising marginal costs
individual supply curve
A graph plotting the quantity of an item that a business plans to sell at each price.
market supply curve
A graph plotting the total quantity of an item supplied by the entire market, at each price.
An increase in input costs will cause
A leftward shift because at each given price, you will provide fewer units
If productivity decreases
A leftward shift will occur because at every given price, you will provide fewer units
When price changes your thinking about
A movement along the supply curve (quantity supplied)
A decrease in input costs will cause
A rightward shift because at a given price, you are able to provide more units
If productivity increases,
A rightward shift will occur because at a given price you provide more units
perfectly competitive market
All firms in the industry sell an identical good. There are buyers and many sellers, each of whom is small relative to the size of the market.
Which of the following scenarios depicts a seller who is following rational rule for sellers
American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.
A coffee shop opens next to an existing coffee shop. Which of the following graphs shows the effect of this new coffee shop on the market supply curve for coffee in this area?
An increase in supply (a shift to the right)
Why is the supply curve upward sloping?
As prices increase, quantity supply increases (selling more will bring more profit) -law of supply
An individual supply curve holds other things...
Constant
Why does the supply curve slope upward?
Higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods /services
complements in production (goods that are made together)
If the price of a complement in production rises, you will also increase the production of the good you were supplying
substitutes in production (alternative uses of your production capacity)
If you can produce something else more profitable, you will decrease the supply of the product you were supplying
What are the 4 supply shifters of individual and market supply curves?
Input prices, productivity/tech, prices of related outputs, expectations
A movement along the supply curve
Is a change in quantity supplied as a result of a change in price
Decrease in supply is a shift .....
Left
Ex: the rise in minimum wage would be a curve shift to the
Left
A firm determines what quantity to produce at each price by using the
Marginal principle, interdependence principle, cost-benefits principle, and opportunity cost principle
The type and number of sellers only shifts the
Market supply curve
Are all markets perfectly competitive?
No because if a market has only a few buyers and sellers, then they have market power
If the price is changing ...
Quantity supply is taken into an account (movement along the supply curve)
Increase in supply is a shift .....
Right
If businesses shut down,
Supply decreases
If new businesses enter the market...
Supply increases
Productivity growth is often driven by
Technological change
What is quantity supplied
The amount of an item that a seller is willing to sell at a particular price
The demand curve is also called...
The marginal benefit curve
The supply curve is also called...
The marginal cost curve
Diminishing marginal product
The marginal production of an input declines as you use more of that input (Additional workers result in smaller amounts of added production)
Which of the following is NOT a factor that can shift supply
The market price of a product.
Sellers should keep selling until....
The price is equal to the marginal cost
Market supply is the sum of..
The quantity supplied by each individual seller
As a result of higher input costs (such as hiring more workers and having to pay them),
You will be selling fewer... causing a leftwards shift in supply
If you expect the price of your products to tide next year,
You will increase your profits by storing them and selling them next year. This will decrease your supply this year
A shift in the supply curve is
a movement of the supply curve itself
price takers
actors who charge the market price, their actions do not affect the market price
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:
multiply the individual supply of one of the suppliers by ten.
The supply curve is _______ sloping
upward
When other factors change
you need to think about shifts in the supply curve