Note Sheet – SUPPLY by ajizai


									                 Note Sheet – SUPPLY                      [assume perfectly competitive markets]
41. Supply – quantities producers offer at each (technique/price).
42. The relationship between price and QS is (direct/inverse) and the relationship
    between price and QD is (direct/inverse) or opposite.
43. The “law of supply” indicates that producers will offer (less/more) at higher prices.
44. In moving along a stable supply or demand curve, (income/price) is not held constant.

 Supply Schedule for Baseball Caps
          Price          Caps                                      “Change in QS”
         Per Cap       Supplied                            $30
           $30             500                                                                1. Price change
           $25             460
                                  Particular price           20                               2. Movement
           $20             350
           $15             150                               15                               3. Point on the
           $10              0           Direct               10
                                                              0    100 200 300 400 500

45. (Inelastic/Elastic) supply – supply that is very responsive to price.
46. (Inelastic/Elastic) supply – when a change in price has little impact on QS.
47. The three-item test for elastic supply is: the item can be made quickly,
    it tends to be cheap, and it can be produced by (skilled/unskilled) workers.
48. The three-item test for inelastic supply is: the item cannot be made quickly,
    it tends to be expensive, and (skilled/unskilled) workers are needed to produce it.
49. An example of inelastic supply is (posters/computers/T-shirts).
50. An example of elastic supply is (HDTV/computers/T-shirts).
51. The supply curve for elastic supply is more (flat/vertical).
52. The supply curve for inelastic supply is more flat/vertical).
53. A reduction in the price of cattle feed will cause the (demand/supply) curve for beef to shift.

 Six Nonprice Determinants of Supply (“Supply Shifters”)            “Change in S”
  RATNEST              Suppliers supply sm./larger quantities at each price          Non-price; shift; whole curve

     “R” – resource cost[wages/raw materials][inverse]                  S3      S1       S2
 ($) “A” – alternative output price changes[inverse]
     “T” – technology [direct]            P1 Corn Wheat        P                                   “Shifts”
     “N” – number of suppliers[direct] P2           P
 ($) ”E” – expectations about future price [inverse]
     “S” – subsidies[direct](free money from the G)
     “T” – Taxes [inverse]                                              QS3      QS1 QS2
                                                             All Prices

54.   The “invisible hand” milking machine[technology] would move the supply curve (right/left).
55.   Dell Computer has its taxes increased which moves its supply curve to the (left/right).
56.   Firms[suppliers] entering an industry will cause the supply curve to shift to the (left/right).
57.   A decline in the price of corn[alt. output] would cause a farmer to offer (more/less) wheat.
58.   An increase in wages cause the supply curve for widgets to shift(left/right).
59.   If oil producers expect future oil prices to decline, they will (increase/decrease) current production.
60.   A new professional football league will (increase/decrease) the supply of football games.

 61. Equilibrium price will be ($1/$2/$3).             Bushels Demanded        Corn Price       Bushels supplied
 62. If the price in this market were $2, farmers             26                  $5                  46
                     be able to sell all their corn.
       (would/would not)                                      32                  $4                  41
 63. If the price were initially $5, we would                 37                 $3                   37
     expect the price of corn supplied to                     43                  $2                  32
     (incr/decr) as a result of the price change.             48                  $1                  29
64. A price of $36 will result in a (shortage/surplus) of (50/100).
65. If this is a competitive market, price & quantity will gravitate
    toward ($12 & 150/$24/ & 100).
66. The highest price that buyers will be willing and able to pay
    for 50 units of this product is ($12/$24/$36).
67. A price of $12 will result in a (surplus/shortage) of (50/100).

Incr. in “D”                                                                              Incr. in “S”
    &                                                                                         &
Decr. in “D”                                                                              Decr. in “S”

68. Increase in the price of irrigation equipment[resource cost] upon
    the market for wheat is illustrated by diagram (A/B/C/D).
69. Increase in incomes upon the market for spam
    is illustrated by diagram (A/B/C/D).
70. Subsidy for cancer research being taken away
    is illustrated by diagram (A/B/C/D).
71. Decrease in the price of Coors upon the market
    for Budweiser is illustrated by diagram (A/B/C/D).
72. Decrease in worker wages on the market for textiles is illustrated by diagram (A/B/C/D).
73. Increase in the price of cameras upon the market for film is illustrated by diagram (A/B/C/D).

74. A decrease in income, if “X” is an inferior good would (increase/decrease)
    (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.
75. A decrease in the number of consumers for product “X” will (increase/decrease)
    (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.
76. Producer expectations that the price of “X” will decrease sharply in the future will
    (increase/decrease) (demand/supply), (increase/decrease) price, & (incr/decr) quantity.
77. A decrease in the price of a product which is a substitute to “X” will (increase/decrease)
    (supply/demand), (increase/decrease) price, (increase/decrease) quantity.

78. [Draw on Graph E above] If demand increases & supply decreases, equilibrium price will
    (increase/decrease/stay the same) & equilibrium quantity will (increase/decrease/stay the same).
79. [Draw on Graph F above] If demand decreases & supply increases, equilibrium price will
    (increase/decrease/stay same) & equilibrium quantity will (increase/decrease/stay same).
80. [Draw on Graph G above] If the supply & demand curves both increase, equilibrium price
    will (increase/decrease/stay same) & equilibrium quantity will (increase/decrease/stay same).
81. [Draw on Graph H above] If demand & supply curves both decrease, equilibrium price
    will (increase/decrease/stay same) & equilibrium quantity will (increase/decrease/stay same).

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