2.2 Supply (DP IB Economics: SL): Flashcards
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Define supply.
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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 quantity supplied and price, ceteris paribus.
True or False?
A rise in price causes the supply curve to shift to the right.
False.
A change in price causes a movement along the supply curve (an extension in quantity supplied), not a shift of the curve.
An increase in price leads to a movement up the supply curve, known as an in quantity supplied.
An increase in price leads to a movement up the supply curve, known as an extension in quantity supplied.
Define market supply.
Market supply is the combination of all the individual supply for a good or service, calculated by adding up the individual supply at each price level.
Why does a rational producer supply more as price increases?
A rational profit maximising producer supplies more as prices increase 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 begins to decrease productivity.
What two assumptions underlie the law of supply?
The two assumptions underlying the law of supply are the law of diminishing marginal returns and increasing marginal costs.
True or False?
The assumptions underlying the law of supply explain why the supply curve slopes upward.
True.
Both the law of diminishing marginal returns and increasing marginal costs are cost-related factors that explain the upward-sloping supply curve.
Increasing marginal costs means that as output rises, the additional cost of producing each additional unit .
Increasing marginal costs means that as output rises, the additional cost of producing each additional unit increases.
Define contraction in quantity supplied.
A contraction in quantity supplied is the fall in quantity supplied caused by a decrease in price, shown as a movement down the supply curve.
In the bread example, what is the total monthly market supply from the four bakeries?
In the bread example, the total monthly market supply from the four bakeries is 1,400 loaves.
Define non-price determinants of supply.
The non-price determinants of supply are the factors that change the supply of a good or service irrespective of the price level, shifting the entire supply curve.
What happens to the supply curve when a non-price determinant of supply changes?
A change in a non-price determinant causes a shift of the entire supply curve, rather than a movement along it.
How does an increase in a firm's costs of production affect supply?
An increase in the costs of production causes supply to decrease, shifting the supply curve to the left.
New technology raises productivity and lowers costs of production, so supply increases and the supply curve shifts to the .
New technology raises productivity and lowers costs of production, so supply increases and the supply curve shifts to the right.
Define joint supply.
Goods in joint supply are produced together, so an increase in the supply of one good (e.g. beef) also increases the supply of the other (e.g. leather).
True or False?
A subsidy for producing electric vehicles shifts the demand curve for electric vehicles to the right.
False.
A subsidy shifts the supply curve to the right; the resulting lower price then causes a movement along the demand curve (an extension of quantity demanded).
How does an increase in the number of firms in an industry affect supply?
An increase in the number of firms increases supply, shifting the supply curve to the right.
Define competitive supply.
Goods in competitive supply are alternatives a producer can make, so increasing the supply of one good (e.g. potatoes) decreases the supply of the other (e.g. wheat).
An increase in indirect taxes raises the costs of production, causing the supply curve to shift to the .
An increase in indirect taxes raises the costs of production, causing the supply curve to shift to the left.
True or False?
A drought will cause the supply of agricultural goods to increase.
False.
A drought causes a supply shock that decreases supply, shifting the curve left; unexpectedly good growing conditions increase supply.
Why do firms reduce supply now if they expect prices to rise in the future?
Firms hold back supply now to sell later at a higher price, which decreases current supply and shifts the curve left.
Define supply shock.
A supply shock is a sudden change in supply caused by an event such as a drought or flooding, particularly in agricultural markets.
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