Chapter 3: Understanding Supply

Flashcards covering key vocabulary related to understanding the five factors influencing supply curves, shifts, and movements, based on the Chapter 3 lecture notes.

Supply Curve Shift

A movement of the entire supply curve, occurring when factors other than the good's own price change.

Increase in Supply

A shift of the supply curve to the right, indicating that sellers are willing to supply a greater quantity at each and every price.

Decrease in Supply

A shift of the supply curve to the left, indicating that sellers are willing to supply a lesser quantity at each and every price.

Five Factors that Shift Market Supply

Input prices, productivity and technology, prices of related outputs, expectations, and the type and number of sellers (I, POET).

Input Prices (supply shifter)

A change in the cost of resources used to produce a good; an increase in input prices typically raises marginal cost and decreases supply.

Productivity Growth (supply shifter)

Producing more output with fewer inputs, often due to technological change, which typically lowers marginal costs and increases supply.

Complements-in-Production

Goods that are made together, such as a main product and its byproduct. An increase in the price of one may lead to an increased supply of the other.

Substitutes-in-Production

Alternative goods that can be produced using the same resources. If the price of one substitute-in-production rises, the supply of the other likely decreases.

Expectations (supply shifter)

Sellers' beliefs about future prices. If sellers expect prices to rise, current supply may decrease as they hold back product.

Type and Number of Sellers (supply shifter)

Refers to the entry of new sellers into a market (increases supply) or the exit of existing sellers (decreases supply).

Movement Along Supply Curve

A change in the quantity supplied caused solely by a change in the price of the good itself, not a shift of the entire curve.

Quantity Supplied

The specific amount of a good or service that sellers are willing and able to sell at a particular price, represented by a point on the supply curve.

Individual Supply

The quantity of a good that a single producer is willing and able to sell at each given price.

Market Supply

The sum of the quantity each individual business supplies at each price, representing the total supply for all sellers in the market.

Rational Rule for Sellers

The principle that guides sellers to maximize profit, which implies that their individual supply curve is their marginal cost curve.