Chapter 3: Supply and Producer Choice

Individual supply curve

A graph plotting the quantity of an item that a business plans to sell at each price.

Law of supply

The tendency for the quantity supplied to be higher when the price is higher.

Perfect competition

Markets in which (1) all firms in an industry sell an identical good and (2) there are many buyers and sellers, each of whom is small relative to the size of the market.

Price-takers

Someone who decides to charge the prevailing price and whose actions do not affect the prevailing price.

Variable costs

Those costs—like labor and raw materials—that vary with the quantity of output you produce.

Fixed costs

Those costs that don’t vary when you change the quantity of output you produce.

Movement along the supply curve

A price change causes movement from one point on a fixed supply curve to another point on the same curve.

Change in the quantity supplied

The change in quantity associated with movement along a fixed supply curve.

Shift in the supply curve

A movement of the supply curve itself.

Increase in supply

A shift of the supply curve to the right.

Decrease in supply

A shift of the supply curve to the left.

Factors that shift the supply curve

1. Input prices

2. Productivity and technology

3. Prices of related outputs

4. Expectations

5. The type and number of sellers

Substitutes-in-production

Alternative uses of your resources. Your supply of a good will decrease if the price of a substitute-in-production rises.

Complements-in-production

Goods that are made together. Your supply of a good will increase if the price of a complement-in-production rises.