Competitive Markets: Supply

A fall in the price of corn, ceteris paribus, is likely to lead to _______________ the supply curve

for corn.

• a leftward shift in

• a rightward shift in

• a downward movement along

• an upward movement along

Answer explanation

A fall in price will only cause movement along a supply curve, rather than a shift. Since the price fell, quantity supplied will decrease as well.

Which of the following is likely to increase the supply of strawberries?

• an increase in the demand for strawberries

• an increase in the price of pesticides

• a fall in the price of blueberries, a competitive good in production

• an increase in the price of strawberries

Answer explanation

Blueberries in this case would be an example of competitive supply.

A fall in input prices or costs of production, ceteris paribus, leads to

• an increase in supply

• a decrease in supply

• an increase in demand

• a decrease in demand

Answer explanation

If inputs, or factors of production, are less expensive, then a firm can increase their production at a lower cost.

An increase in the quantity of corn supplied, shown by _______________ can result from ______________________.

• a downward movement along the supply curve / an improvement in the technology of producing corn

• an upward movement along the supply curve / an increase in the price of corn

• a rightward shift of the corn supply curve / lower input prices

• a leftward shift of the corn supply curve / higher input prices

Answer explanation

Since this question is asking about "quantity supplied," then it has to be caused by a change in price. Since quantity increased, the law of supply states that the price probably increased as well.

You observe that the quantity of a good supplied by producers falls as the price of the good increases. You conclude that

• this is a violation of the law of supply

• this is likely due to an increase in supply

• this is likely due to a decrease in demand

• this is likely due to a decrease in supply

Answer explanation

If quantity supplied has fallen but prices have risen, that's a good indication that the supply curve has probably shifted to the left.

The short run is the period of time when _____________________ whereas the long run is the period of time when _____________________.

• all factors of production are fixed / all factors of production are variable

• at least one factor of production is fixed / at least one factor of production is variable

• at least one factor of production is fixed / all factors of production are variable

• all factors of production are fixed / at least one factor of production is variable

Answer explanation

Land and capital are usually the fixed inputs in the short-run. Everything is variable in the long-run

The marginal product of labour refers to

• output produced by one worker on average

• extra cost of hiring one more worker

• extra output produced by one more worker

• extra revenue gained from hiring one more worker

Answer explanation

"Marginal" in economics means "one more." In this case, we want to know how much more of a product (or output) do we get from hiring one more person.

Show the impact of the following on product A: The price of oil, an important input in the production of product A, increases.

• S1

• S2

• S3

Answer explanation

This will raise production costs, so supply should shift to the left.

Show the impact of the following on product A: The number of firms in the industry producing product A decreases.

• S1

• S2

• S3

Answer explanation

With fewer firms, supply will decrease, shifting the curve to the left.

Show the impact of the following on product A: The government grants a subsidy on each unit of A produced.

• S1

• S2

• S3

Answer explanation

Subsidies lower costs of production, which shifts the supply curve to the right