Econ 101 - Chapter 3: Supply and Producer Choice

Change in quantity supplied

When a good becomes more useful because other people use it – if more people buy a good, your demand for it will also increase (e.g. iPad, social media)

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.

Complements-in-production

Goods made together, your supply of a good will increase if the price of a complement-in-production rises 

Individual supply curve

a graph plotting the quantity of an item that an individual seller/business plans to sell at each price

Law of supply

Tendency as price rises, the quantity supplied does too

Perfect competition

Markets in which
1) All businesses in an industry sell an identical good   
2) Assume that there are many sellers and many buyers, each of whom is small relative to the size of the market

Marginal costs

Include variable costs but exclude fixed costs 

Variable costs

those costs (like labour and raw materials) that vary with the quantity of output you product 

Fixed costs

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

Marginal product

Increase in output that arises from an additional unit of an input, like labour 

Diminishing marginal product

The marginal product of an input declines as you use more of that input

Rational Rule for Sellers In Competitive Markets

Sell one more item if the price is GREATER THAN or EQUAL TO the marginal cost

Market supply curve

Plots total quantity supplied by the entire market at each price

Price taker

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

Shift in the supply curve

Movement of the supply curve itself

Increase in supply

shift of supply curve to the right

Decrease in supply 

shift of the supply curve to the left 

Substitutes-in-production

alternative uses of resources— your supply of a good will decrease if the price of a substitue-in-production rises