Law of Supply and Non-Price Determinants

A set of flashcards covering key concepts related to the law of supply, its determinants, and market dynamics.

Law of Diminishing Marginal Returns

States that adding more of one factor of production, while holding others constant, will eventually yield lower additional output.

Marginal Cost

The cost of producing one more unit of a good, which increases as output increases in competitive markets.

Movement Along the Supply Curve

Occurs when the price of a good changes, leading to a change in quantity supplied.

Shift of the Supply Curve

A change in any factor other than the price of the good itself that alters the quantity supplied at all prices.

Joint Supply

When two or more goods are derived from the same product, with an increase in the price of one leading to an increase in the other(s).

Competitive Supply

When the production of two goods uses similar resources, so producing more of one means producing less of the other.

Indirect Tax

A tax imposed on a good or service, increasing its selling price and potentially affecting supply.

Subsidy

An amount of money granted by the government to a firm, decreasing production costs and increasing supply.

Expectations about Future Prices

Producers may alter supply based on predictions of future price changes, leading to temporary market reactions.

Government Intervention

Actions taken by the government to influence supply or demand in a market, including regulations, taxes, and subsidies.

Technology (as a determinant of supply)

Improvements in technology can lower production costs and increase efficiency, leading to an increase in supply.

What is a Supply Curve?

A graphical representation showing the relationship between the price of a good or service and the quantity supplied over a period of time, ceteris paribus.

Why does the supply curve typically slope upwards?

It reflects the Law of Supply: as the price of a good increases, producers are incentivized to supply more of it, due to higher profitability.

Define 'Quantity Supplied'.

The specific amount of a good or service that producers are willing and able to sell at a particular price during a specific period.

How do 'Input Prices' affect supply?

An increase in the cost of resources (labor, raw materials, energy) used in production will increase production costs, leading to a decrease in supply (shift left).

How does the 'Number of Sellers' in a market affect supply?

An increase in the number of firms supplying a good will increase the overall market supply, shifting the supply curve to the right.

How do 'Government Regulations' affect supply?

Stricter regulations (e.g., environmental standards, safety rules) can increase production costs, leading to a decrease in supply.

Elaborate on 'Producer Expectations about Future Prices' impact on current supply.

If producers expect future prices to rise, they might reduce current supply to sell more later; if they expect prices to fall, they might increase current supply.

Provide an example of how 'Technology' can increase supply.

New machinery that automates production reduces labor costs and increases output per hour, shifting the supply curve to the right.

Give an example of 'Competitive Supply'.

A farmer can grow either corn or soybeans. If the price of corn rises, they shift land from soybeans to corn, decreasing the supply of soybeans.

Give an example of 'Joint Supply'.

Crude oil refining produces both gasoline and asphalt. An increase in gasoline demand (and price) leads to increased refining, which also increases the supply of asphalt.