Chapter 3: Supply and Producer Choice – Vocabulary

Vocabulary flashcards covering key terms and concepts from Chapter 3: Supply and Producer Choice.

Individual supply curve

A graph plotting the quantity a single business plans to sell at each price; focuses on one firm’s selling decisions.

Ceteris paribus

Holding other factors constant when analyzing how price affects selling plans.

Law of Supply

The tendency for quantity supplied to rise as price rises, producing an upward-sloping supply curve.

Market supply curve

The total quantity the entire market is willing to supply at each price; built by summing individual supply curves.

Price taker

A seller that cannot influence the market price and accepts the prevailing market price (common in perfect competition).

Perfectly competitive market

A market with many buyers and sellers, identical products, easy entry; price takers.

Marginal benefit

The additional benefit from selling one more unit; in this context, equal to the market price.

Marginal cost

The additional cost of producing one more unit; consists of variable costs and excludes fixed costs.

Rational Rule for Sellers

Keep producing until price equals marginal cost; if price > MC, produce more; if price < MC, stop.

Variable costs

Costs that vary with output, such as labor and raw materials.

Fixed costs

Costs that do not vary with output, such as refinery buildings, land, and equipment; irrelevant to marginal cost.

Marginal product

The increase in output from an additional unit of an input (e.g., one more worker).

Diminishing marginal product

The marginal product of an input falls as more of the input is used, causing rising marginal costs.

Upward-sloping supply curve

A supply curve that slopes upward because marginal costs rise as production expands.

Movement along the supply curve

A change in quantity supplied caused by a change in price, holding all else constant.

Shift of the supply curve

A change in supply due to factors other than price, causing the entire curve to move.

Market price

The current price in the market at which buyers and sellers trade; helps determine quantity supplied.

Not perfectly competitive market

Markets with some imperfection (few buyers/sellers, unique products, loyalty) where sellers may not be price-takers.

Supply

The quantity of a good that producers are willing and able to offer for sale at various prices.

Market supply estimation

A four-step process to estimate market supply: survey suppliers, sum quantities at each price, scale up, plot total quantity.

Price equals marginal cost condition

In a competitive market, the optimal production level occurs where price equals marginal cost.