Supply shifts chapter 3

Vocabulary flashcards covering key terms related to supply curves, shifts, and shifters from the notes.

Supply curve

A graph showing the relationship between the market price and the quantity of a good that producers are willing to supply, holding all else constant.

Shift in the supply curve

A change in the position of the entire supply curve caused by non-price factors, resulting in a different quantity supplied at every price.

Increase in supply

A rightward shift of the supply curve; at each price, a larger quantity is supplied.

Decrease in supply

A leftward shift of the supply curve; at each price, a smaller quantity is supplied.

Shifters of the supply curve (I POET)

Five factors that can shift the supply curve: Inputs (input prices), Productivity and technology, Prices of related outputs, Expectations, and Type/number of sellers.

Input prices

Prices of inputs used to produce a good; higher input prices raise marginal cost and tend to decrease supply (shift left).

Productivity and technology

Improvements that produce more output with the same inputs; typically reduce marginal cost and shift the supply curve to the right.

Complements-in-production

Two or more goods produced together; the price of one can affect the supply of the other.

Byproduct

A secondary product produced in the same process; its price affects the supply of the main product.

Main product

The primary good produced in a production process (e.g., peanut butter in the peanut butter/oil example).

Prices of related outputs

Prices of other goods produced with the same inputs can influence supply decisions (e.g., byproducts or substitutes in production).

Substitutes-in-production

Alternative uses of resources; if the price of one product rises, more resources may be devoted to producing it, reducing the supply of the other.

Expectations

What producers expect about future prices; if a higher price is expected, current supply may decrease as producers hold back.

Type and number of sellers

The number of sellers in a market; more sellers increase supply, fewer sellers decrease supply.

Movement along the supply curve

A change in the quantity supplied caused only by a change in the price of the good itself.

Marginal cost

The cost of producing one more unit of output; the supply curve is driven by marginal cost.

Productivity growth

Increase in output per unit of input, often due to technology; lowers marginal cost and shifts supply to the right.

Rightward shift (increase in supply)

A movement of the supply curve to the right, indicating a higher quantity supplied at each price.

Leftward shift (decrease in supply)

A movement of the supply curve to the left, indicating a lower quantity supplied at each price.

Be careful: price changes do not shift supply

Only changes in non-price factors shift the supply curve; price changes cause movement along the curve (change in quantity supplied).