Questions and Answers
What is the law of supply?
Price and quantity supplied of a good are directly related to each other.
What is quantity supplied?
The quantity of a commodity that producers are willing to sell at a particular price at a particular point of time.
What is the difference between supply and quantity supplied?
Quantity supplied refers to the amount of the good businesses provide at a specific price; supply is an equation or line on a graph showing the different quantities provided at every possible price.
What does a supply schedule show?
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What does a market supply curve show?
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What does marginal cost refer to?
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What is marginal revenue?
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Is operating cost a fixed cost or a variable cost? Why?
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What are examples of fixed costs and variable costs?
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What is a subsidy?
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How does a subsidy affect the supply curve?
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What is an excise tax?
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How do excise taxes affect the supply curve?
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What effects do regulations have on the supply curve? Why?
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Where do firms produce?
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How does an excise tax increase production costs?
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When should a firm keep a money-losing factory open?
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What is a firm's basic goal when it sets its level of output?
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Why does a closed factory still have production costs?
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How does capital affect marginal returns?
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Study Notes
Law of Supply
- The law of supply establishes a direct relationship between price and quantity supplied of a good.
Quantity Supplied
- Quantity supplied refers to the specific amount of a commodity producers are willing to sell at a particular price at a specific time.
Difference Between Supply and Quantity Supplied
- Quantity supplied pertains to the amount offered at a certain price, while supply refers to the entire equation or line on a graph illustrating various quantities available at different prices.
Supply Schedule
- A supply schedule lists the prices of a good alongside the corresponding quantities that would be supplied at those prices.
Market Supply Curve
- The market supply curve reflects the total quantity of goods and services available for sale in the market at different prices.
Marginal Cost
- Marginal cost indicates the change in total production cost when producing one additional unit of an item.
Marginal Revenue
- Marginal revenue is determined by dividing the change in total revenue by the change in output quantity.
Operating Costs
- Operating costs are categorized into fixed and variable costs, representing expenses incurred in managing a business.
Fixed Costs and Variable Costs
- Fixed costs are stable business expenditures that do not change with production levels, while variable costs fluctuate, e.g., expenses for fuel.
Subsidy
- A subsidy involves government assistance that covers part of the costs incurred by firms.
Impact of Subsidy on Supply Curve
- A subsidy leads to the supply curve shifting to the right, reflecting increased quantity supplied at given prices.
Excise Tax
- An excise tax is a targeted tax applied to the sale or use of specific goods and services.
Effect of Excise Taxes on Supply Curve
- Excise taxes result in the supply curve shifting to the left, indicating a decrease in quantity supplied.
Effects of Regulations on Supply Curve
- Regulatory measures usually reduce the quantity that producers are willing to supply at various prices.
Production Locations for Firms
- Firms produce their goods within markets.
Production Costs from Excise Tax
- Excise taxes elevate production costs, making the production of goods more expensive.
Keeping a Money-Losing Factory Open
- A firm may maintain operations at a loss when potential profits from other work can outweigh losses.
Firm's Basic Profit Goal
- The primary objective for a firm when determining its output level is to maximize profits.
Production Costs in Closed Factories
- Closed factories still incur production costs due to ongoing production activities in other areas.
Capital's Effect on Marginal Returns
- Inadequate capital can lead to suboptimal production levels, resulting in diminished marginal returns.
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Description
Test your knowledge of key economic concepts in Chapter 5. This set of flashcards covers the law of supply, quantity supplied, and the differences between supply and quantity supplied. Perfect for reinforcing your understanding of fundamental economic principles.
