Economics: Supply and Market Equilibrium

Flashcards covering supply schedules, supply curves, shifters of supply, excess supply and demand, and market equilibrium from Chapter 1 through Chapter 7.

What is the difference between a supply schedule and a supply curve?

A supply schedule is a table showing the quantity of a good that firms wish to produce and sell at any given price, whereas a supply curve is a graphical representation of that same relationship.

What does the Law of Supply state?

Holding all else constant (ceteris paribus), higher prices lead to higher quantities supplied, meaning supply curves generally slope upwards.

Why is the labor market an exception to the Law of Supply at very high wages?

At extremely high wages, individuals may choose to work fewer hours because the income effect dominates and they prefer to buy more vacations and take extra time off rather than work more hours.

What is the key distinction between supply and quantity supplied?

Supply refers to the entire curve and relationship across all prices, whereas quantity supplied refers to a specific numeric quantity at a particular price.

In the smartphone example where LG's production cost is $150$ per unit, why will LG produce at a market price of $200$ but not at $100$?

At a price of $100$, LG would lose $50$ per phone and stays out of the market; at a price of $200$, revenue exceeds cost, yielding a profit of $50$ per phone ($200 - 150 = 50$).

How do increases and decreases in supply appear geometrically on a graph?

An increase in supply is represented as a shift to the right, while a decrease in supply is represented as a shift to the left.

Why does the lecturer advise using shifts 'left' and 'right' instead of 'up' and 'down' when describing changes in supply?

Because Alfred Marshall placed price on the vertical axis and quantity on the horizontal axis, an upward visual shift in supply represents a decrease in supply, which creates confusion with demand shifts.

How does an increase in the price of beef affect the supply curve for hamburgers at restaurants like McDonald's and Dick's Drive In?

It raises input costs of production, causing profit margins to drop and shifting the supply curve of hamburgers to the left.

What historical innovation by Henry Ford is cited as an example of positive technological change shifting supply to the right?

The introduction of the assembly line (production line), where workers perform repetitive individual tasks on a moving line instead of building entire cars from scratch.

What medical phenomenon is used as a real-world example of negative technological change?

Antibacterial resistance to penicillin, which rendered the drug less productive and technologically capable of treating bacterial infections due to overuse.

According to the lecture, how does an increase in the price of hops affect the market supply of wheat in Eastern Washington?

Because farms can grow either crop, higher hop prices incentivize farmers to switch land to hops, decreasing the supply of wheat (shifting wheat supply to the left).

How does an increase in the number of matcha shops in the U District affect the market supply curve for matcha?

It increases the total supply at every price, shifting the entire market supply curve to the right.

How do producers' expectations of higher smartphone prices in the future affect current supply?

Producers withhold current inventory to sell at the anticipated higher price later, causing current supply to decrease and shift to the left.

Does cutting cell phone prices for a Black Friday sale cause a shift in the supply curve or a movement along the supply curve?

It causes a movement along the supply curve because the change is in the price of the good itself.

In the tea market example, what occurs when the price is set at $1$ where quantity supplied is $130$ and quantity demanded is $280$?

There is excess demand (a shortage) of $150$ cups of tea ($280 - 130 = 150$), indicating that sellers should raise the price.

In the tea market example, what occurs when the price is set at $8$ where quantity supplied is $1,040$ and quantity demanded is $140$?

There is excess supply (a glut) of $900$ cups of tea ($1,040 - 140 = 900$), signaling sellers to lower the price.

Why does the lecturer prefer the term 'glut' over 'surplus' when referring to excess supply?

Because the term surplus is also used in economics to describe other concepts (such as consumer and producer surplus), which can lead to confusion.

What is the equilibrium price in the tea market example where neither excess demand nor excess supply exists?

The equilibrium price is $2$, where quantity supplied equals quantity demanded.

What French term describes the trial-and-error process of reaching market equilibrium by adjusting prices?

Tâtonnement (literally meaning 'groping').

In the lecture's smartphone market, what are the competitive market equilibrium price and quantity?

An equilibrium price of $200$ and an equilibrium quantity of $10,000,000$ smartphones per week.

What happens to the equilibrium price and quantity of smartphones if Amazon enters as a new manufacturer?

Market supply shifts to the right, which creates excess supply at the initial price, leading to a lower equilibrium price and a higher equilibrium quantity.