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Notes 03

# Notes 03 - Notes 03 Introductory Microeconomics ECON 1110...

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Notes 03 - Introductory Microeconomics ECON 1110 II. A BRIEF REVIEW OF SUPPLY Supply, or the Supply Curve, maps out the quantity of a good that will be willingly sold (the quantity supplied) at each price, while holding fixed other factors that might influence the location of the supply curve. Specifically, these other factors are: 1. The prices of inputs to the production process ( ω ). 2. Technology ( τ ). 3. Anything else that could affect the costs of production (Z). 1 st Law of Supply : As price increases, the quantity supplied increases, ceteris paribus. It is important to be able to distinguish between a shift in the supply curve and a movement along the curve. For example: An increase in oil prices has resulted in an increase in the world’s output of oil. If the minimum wage is increased, the costs of producing goods rise, so the supply curve will decrease. That is, the quantity supplied will be lower at all prices. With the advent of computers, firms have been able streamline their operations, which reduces costs. As costs decrease, supply increases, indicating that the quantity supplied will be greater at all prices. A FIRM’S SUPPLY FUNCTION maps out the quantity of a good that a firm will sell at each price. A MARKET SUPPLY FUNCTION maps out the total quantity of a good that will be sold in a market at each price. It is the horizontal sum of all firms’ supply curves. MARGINAL COST: Another way of thinking about supply curves is that they trace out the marginal cost to produce each unit of a good. Marginal cost indicates how much additional cost a producer incurs as a result of producing one additional unit of a good. The first law of supply indicates that as additional units of a good are produced, marginal costs increase. TOTAL COST:

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Notes 03 - Notes 03 Introductory Microeconomics ECON 1110...

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