2.2 Supply (DP IB Economics: HL): Flashcards
0Still learning
Know0
Define supply.
Was this flashcard helpful?
Cards in this collection (24)
Define supply.
Supply is the amount of a good or service that a producer is willing and able to supply at a given price in a given time period.
What does the law of supply state?
The law of supply states that there is a positive (direct) relationship between price and quantity supplied, ceteris paribus.
Define market supply.
Market supply is the combination of all the individual supply for a good or service, found by adding up the individual supply at each price level.
True or False?
The supply curve slopes downward.
False.
The supply curve slopes upward, because there is a positive relationship between price and quantity supplied.
An increase in price causes a movement up the supply curve, known as an in quantity supplied.
An increase in price causes a movement up the supply curve, known as an extension in quantity supplied.
Why are producers willing to supply more as the price rises?
Rational profit-maximising producers supply more as prices rise in order to maximise their profits.
Define the law of diminishing marginal returns.
The law of diminishing marginal returns states that as more of a variable factor is added to fixed factors, a point is reached where each additional unit adds less to output.
Define increasing marginal costs.
Increasing marginal costs describe how, as a producer raises the quantity supplied, the additional cost of producing each extra unit rises.
True or False?
The law of supply assumes that marginal costs fall as output increases.
False.
The law of supply assumes increasing marginal costs, which is why the supply curve slopes upward.
A decrease in price causes a movement down the supply curve, known as a in quantity supplied.
A decrease in price causes a movement down the supply curve, known as a contraction in quantity supplied.
Which two assumptions underlie the law of supply?
The law of supply rests on the law of diminishing marginal returns and increasing marginal costs.
What causes a movement along the supply curve?
A change in price (ceteris paribus) causes a movement along the supply curve, changing the quantity supplied.
Define non-price determinants of supply.
Non-price determinants of supply are the factors, other than price, that change the supply of a good or service and shift the entire supply curve.
What causes a shift of the supply curve?
A shift of the supply curve is caused by a change in a non-price determinant of supply, moving the whole curve left or right at every price level.
An increase in indirect taxes shifts the supply curve to the .
An increase in indirect taxes shifts the supply curve to the left.
How does the introduction of new technology affect supply?
New technology raises productivity and lowers costs of production, so supply increases and the curve shifts right.
Define goods in joint supply.
Goods in joint supply are goods produced together, so an increase in the supply of one (e.g. beef) also increases the supply of the other (e.g. leather).
Define goods in competitive supply.
Goods in competitive supply compete for the same resources, so increasing the supply of one (e.g. potatoes) decreases the supply of the other (e.g. wheat).
True or False?
A drought shifts the supply curve of an agricultural good to the right.
False.
A drought causes a supply shock that decreases supply, shifting the curve to the left.
An increase in the number of firms in an industry shifts the supply curve to the .
An increase in the number of firms in an industry shifts the supply curve to the right.
What happens to current supply if firms expect the price of a good to rise in the future?
If firms expect the price to rise, they hold back supply now to sell later, so current supply decreases and the curve shifts left.
True or False?
A producer subsidy shifts the demand curve for the good to the right.
False.
A producer subsidy shifts the supply curve to the right; the lower price then causes a movement along the demand curve.
How does an increase in the costs of production affect supply?
An increase in the costs of production means firms can afford to produce less, so supply decreases and the curve shifts left.
How does an increase in a producer subsidy affect supply?
An increase in a producer subsidy lowers costs of production, so supply increases and the curve shifts right.
Sign up to unlock flashcards
or