ECON101 Lecture Notes - Lecture 10: Economic Equilibrium
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1 Oct 2016
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Chapter 3 demand and supply lec 2. If the price of a factor of production used to produce a good rises, the minimum price that a supplier is willing to accept for producing each quantity of that good rises. So a rise in the price of a factor of production decreases supply and shifts the supply curve leftward. A substitute in production for a good is another good that can be produced using the same resources. The supply of a good increases if the price of a substitute in production falls. Goods are complements in production if they must be produced together. The supply of a good increases if the price of a complement in production rises. When the price of the good changes and other influences on sellers" plans remain the same, the quantity supplied changes and there is a movement along the supply curve.
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Related Questions
a. State the law of supply.
Quantity supplied rises as price increases, other things are constant. Quantity supplied falls as price decreases, other things are constant. | |
Supply increases as price falls. Supply decreases as price rises. | |
Supply increases as price increases. Supply decreases as price decreases. | |
Quantity supplied rises as price falls, other things constant. Quantity supplied falls as price increases, other things are constant. |
b. Why is price directly related to quantity supplied?
As price rises, consumers substitute other goods whose price has not risen. | |
As price rises, suppliers rearrange their activities to supply more of that good to take advantage of the higher price. | |
As price falls, suppliers rearrange their activities to supply more of that good to take advantage of the lower price. | |
As price rises, suppliers rearrange their activities to supply more of a substitute good to take advantage of the higher price. |