Supply and Producer Choice Flashcards
(41 cards)
What is an individual supply curve?
A graph plotting the quantity of an item that a business plans to sell at each price.
It visually summarizes the selling plans of a business and how those plans vary with price.
What does ‘Ceteris Paribus’ mean?
Holding other things constant.
It indicates that when drawing an individual supply curve, other influencing factors are set aside.
What is the Law of Supply?
The tendency for quantity supplied to be higher when the price is higher.
This implies that supply curves slope upward.
What is a perfectly competitive market?
Markets in which all firms in an industry sell an identical good and there are many small buyers and sellers.
In such markets, individual sellers cannot set their own prices.
What is the Rational Rule for Sellers?
Sell one more unit if the price is greater than (or equal to) the marginal cost.
Keep producing until Price = Marginal Cost.
What are marginal costs?
Costs that include variable costs but exclude fixed costs.
Variable costs vary with the quantity of output, while fixed costs do not.
What is diminishing marginal product?
The marginal product of an input declines as more of that input is used.
It can occur in the short run when some inputs are fixed.
What influences the upward-sloping nature of the supply curve?
Rising marginal costs and diminishing marginal product.
As production expands, bottlenecks can cause marginal costs to increase.
What is a market supply curve?
A graph plotting the total quantity of an item supplied by the entire market at each price.
It is built from individual supply curves.
What is the relationship between individual supply curves and market supply?
Individual supply curves are the building blocks of market supply.
The total quantity supplied at each price is the sum of the quantity supplied by each business.
What does it mean for sellers to be price-takers?
They accept the market price and cannot set their own prices.
This is characteristic of perfectly competitive markets.
Fill in the blank: The individual supply curve plots the quantity a person plans to sell at each price, holding all other factors constant (________).
ceteris paribus
True or False: The supply curve slopes downward.
False.
The supply curve slopes upward due to the Law of Supply.
What should you consider when making marginal choices in selling?
The benefits must exceed the costs.
This relates to the Cost-Benefit Principle.
What happens to marginal costs when production is expanded?
They tend to rise due to bottlenecks and diminishing returns.
This is why the supply curve is generally upward-sloping.
How do you estimate market supply?
Survey suppliers, add up the total quantity supplied at each price, and plot the results.
This can be simplified if suppliers are similar.
What does the opportunity cost principle help determine?
What to count as marginal costs.
It involves comparing to the next best alternative.
What does the market supply curve represent?
The total quantity supplied by the entire market at each price.
What is the Law of Supply?
A higher price leads businesses to supply a larger quantity.
What happens to quantity supplied when prices increase?
Current suppliers produce more units and new suppliers enter the market.
What causes a movement along the supply curve?
A change in price.
Define ‘movement along the supply curve’.
A price change causes a movement from one point on a fixed supply curve to another point on the same curve.
What is a change in the quantity supplied?
The change in quantity associated with movement along a fixed supply curve.
What triggers a change in the quantity supplied?
A price change.
