AP Macro Modules 1.5-1.6

What is the quantity supplied?

the actual amount of a good or service people are willing to sell at some specific price

What is a supply schedule?

Shows how much of a good or service producers would supply at different prices

What is the 6th determinant of supply

Taxes and subsidies

Supply curve

Shows the relationship between the quantity supplied and the price

Law of supply

States that all other things being equal, the price and quantity supplied of a good are positively related (as price rises, quantity rises too)

What is a change in supply?

Shift of the supply curve, indicating a change in the quantity supplied at any given price

What is movement along the supply curve

Change in the quantity supplied of a good arising from a change in the good’s price

T/F A change in demand can affect supply and vice versa

False

If a change in demand causes a change in price, it will affect the quantity supplied by -________

If a change in supply causes a change in price, it will affect the quantity demanded by ________

causing a movement along the demand curve

Increase in supply in the supply curve shown through

rightward shift of the supply curve

Decrease in supply shown through

leftward shift of supply curve

What are the five factors for shifts of the supply curve?

What are the five factors for shifts of the supply curve?

input prices

prices of related goods or services

producer expectations

the number of producers

technology

What is an input?

a good or service that is used to produce another good or service

When the price of an input falls, the supply of the good _____

When the price of an input increases, the supply of the good ______

increases, decreases

What are substitutes in production?

producers can use the same inputs to make either one good or the other

What are complements in production?

increased production of either good creates more of the other

When the price of a related good or service such as a substitute in production falls, supply of the original good _______

When the price of a related good or service such as a substitute in production rises, supply of the original good _______

increases, decreases

When the price of a related good or service such as a complement in production rises, supply of the original good _____

When the price of a related good or service such as a complement in production falls, supply of the original good _____

increases, decreases

When the price is expected to fall in the future, the supply today ______

When the price is expected to rise in the future, the supply today ______

increases, decreases

When the number of producers rises, the market supply of the good ______

When the number of producers falls, the market supply of the good ______

increases, decreases

What is technology when regarded in economics?

all the methods people can use to turn inputs into useful goods and services

When the technology used to produce the good improves, the supply of the good ______

When the technology used to produce the good is no longer available, the supply of the good ______

increases, decreases

What is an individual supply curve?

the relationship between quantity supplied and price for an individual producer

What is the market supply curve?

combined total quantity supplied by individual producers in the market depending on the market price of the good

horizontal sum of individual supply curves of all producers

According to the law of supply, which of the following is true as the price of a good or service decreases?

Producers are willing and able to sell less because their profits decrease.

When is an economic situation in equilibrium?

When no individual would be better off doing something different. Equilibrium in a competitve market occurs where the supply and demand curve intersect.

When is a competitive market in equilibrium?

When the price has moved to a level which the quantity demanded of a good equals the quantity supplied of that good. No buyer or seller would be better off at a different price

What is the equilibrium price?

The price that matches the quantity supplied and quantity demanded

What is the equilibrium price also known as? Why?

the market-clearing price; every buyer would be able to find a seller willing to sell at the price they are wiling to payc

What is the equilibrium quantity?

quantity of the good bought and sold at the equilibrium price

Why do all sales and purchases take place at the same price?

a seller isn’t going to be willing to sell at a really low price compared to other sellers and a buyer isn’t going to be willing to pay a really high price compared to to other buyers

What is the market price?

The price where all sellers receive and all buyers pay approximately the same

When is a market in disequilibrium?

market price is above or below the price that equates the quantity demanded with quantity supplied

What is a surplus? What is it also known as?

when quantity supplied exceeds quantity demanded

Equal to the difference between quantity supplied and quantity demanded

Occurs when the price is above its equilibrium level

excess supply

A surplus occurs when the market price is ____ the equilibrium

above

What is a shortage? What is it also known as?

Occurs when the quantity demanded exceeds the quantity supplied

Equal to the difference between quantity demanded and supplied

Occur when the price is below the equilibrium level

Excess demand

If there is a shortage, prices will ____

If there is a surplus, prices will ____

increase, decrease

t/f The market price always moves towards the equilibrium price, where there is no shortage or surplus

true

When the demand for a good or service increases, the equilibrium price and the equilibrium quantity ______. Why?

increase, shortage at original market price

When demand for a good or service decreases, the equilibrium price and quantity _____. Why?

decrease, surplus at original market price

When supply of a good or service decreases, the equilibrium price of the good or service ____ and the equilibrium quantity will ______. Why?

increase, decrease, shortage at original market price

When supply of a good or service increases, the equilibrium price of the good or service ____ and the equilibrium quantity will ______

decrease, increase, surplus at original market price

When the demand increases and supply decreases, the equilibrium price _____

if the shift in demand is larger than the shift in supply, the equiilibrium quantity _______

if the shift in demand is smaller than the shift in supply, the equiilibrium quantity _______

increases, increases, decreases

When the demand decreases and supply increases, the equilibrium price _____

if the shift in demand is larger than the shift in supply, the equiilibrium quantity _______

if the shift in demand is smaller than the shift in supply, the equiilibrium quantity _______

decreases, decreases, increases

When both demand and supply increase, the equilibrium quantity _______

if the shift in demand is larger than the shift in supply, the equiilibrium price _______

if the shift in demand is smaller than the shift in supply, the equiilibrium price _______

increases, increases, decreases

When both demand and supply decrease, the equilibrium quantity _______

if the shift in demand is larger than the shift in supply, the equiilibrium price _______

if the shift in demand is smaller than the shift in supply, the equiilibrium price _______

decreases, decreases, increases

Which of the following describes equilibrium in the supply and demand model?

• Supply equals demand.

• There is no tendency for price to change.

• The market has either a surplus or a shortage.

• Price is equal to quantity.

• The number of buyers and sellers is balanced.

There is no tendency for the price to change

To protect high-cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run?

1. A decrease in domestic production of Y

2. An increase in domestic production of Y

3. An increase in foreign output of Y

An increase in domestic production of Y