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