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Questions and Answers
Questions and Answers
What do elasticity in the short term and long term describe?
What do elasticity in the short term and long term describe?
- Elastic supply is very sensitive to price changes.
- Elasticity does not affect production.
- In short term, supply is inelastic, while in long term, supply can become more elastic. (correct)
- Firms cannot change output levels.
Define supply.
Define supply.
The amount of goods available.
What does a supply curve show?
What does a supply curve show?
The quantity supplied of a good by all suppliers at different prices.
Explain diminishing marginal returns.
Explain diminishing marginal returns.
Explain negative marginal returns.
Explain negative marginal returns.
What two movements does the law of supply involve?
What two movements does the law of supply involve?
How does a manufacturer set total output to maximize profit?
How does a manufacturer set total output to maximize profit?
How is profit determined?
How is profit determined?
How does specialization affect production?
How does specialization affect production?
Explain the marginal product of labor.
Explain the marginal product of labor.
What are variable costs? Give examples.
What are variable costs? Give examples.
What is marginal revenue?
What is marginal revenue?
What is excise tax?
What is excise tax?
What effect do rising input costs have on the price of a good?
What effect do rising input costs have on the price of a good?
What does a subsidy usually do to the cost of making a product?
What does a subsidy usually do to the cost of making a product?
What is the reason that the U.S. government regulates car production?
What is the reason that the U.S. government regulates car production?
When would a factory that is losing money choose to stay open?
When would a factory that is losing money choose to stay open?
When an effort by the government causes the supply of a good to rise, what happens to the supply curve?
When an effort by the government causes the supply of a good to rise, what happens to the supply curve?
If a seller expects the price of a good to rise in the future, what will the seller do?
If a seller expects the price of a good to rise in the future, what will the seller do?
What are two reasons why a government would subsidize products?
What are two reasons why a government would subsidize products?
When is a firm likely to locate itself close to its consumers?
When is a firm likely to locate itself close to its consumers?
Explain the law of supply.
Explain the law of supply.
What does a supply schedule show?
What does a supply schedule show?
What two factors make up total cost?
What two factors make up total cost?
Explain increasing marginal returns.
Explain increasing marginal returns.
What does elasticity of supply measure?
What does elasticity of supply measure?
What is inflation?
What is inflation?
How does technology affect production?
How does technology affect production?
Explain elastic and inelastic supply.
Explain elastic and inelastic supply.
How is total cost determined?
How is total cost determined?
What are fixed costs? Give examples.
What are fixed costs? Give examples.
What is marginal cost?
What is marginal cost?
Why does a supply curve shift?
Why does a supply curve shift?
How would an excise tax affect supply?
How would an excise tax affect supply?
What is a subsidy?
What is a subsidy?
Questions and Answers
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Study Notes
Study Notes
Elasticity
- Short-term supply is generally inelastic; firms find it hard to alter output quickly.
- Long-term supply can become elastic as suppliers have more time to respond to price changes.
Supply Definitions and Curves
- Supply refers to the total quantity of goods available for sale.
- A supply curve illustrates the quantity supplied at various price levels for a particular good.
Production Concepts
- Diminishing marginal returns occur when additional labor leads to smaller increases in output.
- Negative marginal returns arise when adding labor decreases overall production.
Law of Supply
- Involves changes in production levels by individual firms and the dynamics of firms entering or leaving the market.
- Describes that as prices rise, the quantity supplied also increases.
Profit Maximization
- A manufacturer maximizes profit when marginal cost equals marginal revenue.
- Profit is calculated as total revenue minus total cost.
Specialization Impact
- Specialization boosts production efficiency, often resulting in increasing marginal returns.
Costs
- Variable costs fluctuate based on production levels; examples include raw material costs and utility bills.
- Marginal revenue is the added income from selling one additional unit of a good.
- Fixed costs remain constant regardless of production levels.
Government Interventions
- Excise taxes are imposed on the production or sale of goods, increasing overall production costs.
- Subsidies typically lower production costs, enabling firms to produce more efficiently.
- Regulations, such as those in the car manufacturing sector, aim to reduce environmental impact.
Decision Making for Firms
- A factory may remain operational if revenue covers its operational costs, even when facing losses.
- When supply increases due to government actions, the overall supply curve shifts upwards or to the right.
Future Price Expectations
- If sellers anticipate a future increase in prices, they may store goods now for later sale.
- Conversely, if a price drop is expected, selling immediately can prevent losses.
Market Dynamics
- Supply schedules detail the relationship between goods’ prices and quantities supplied.
- Total costs are derived from the sum of fixed and variable costs.
Returns and Technology
- Increasing marginal returns occur when new investments enhance production levels.
- Advancements in technology can significantly reduce production costs.
Supply Elasticity
- Elastic supply responds swiftly to price changes, while inelastic supply changes minimally in response to price fluctuations.
- Elasticity of supply measures how responsive producers are to price changes.
Inflation
- Inflation is defined as a general increase in prices over time.
Factors Influencing Supply
- A supply curve may shift due to price fluctuations, rising input costs, technological advancements, or changes in the number of suppliers.
- An excise tax can hinder supply by escalating production costs.
Subsidy Overview
- Subsidies are government payments designed to support businesses and stabilize markets.
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