econ 211 lecture 5

econ 211 lecture 5 - Lecture 5 - Supply Supply Law of...

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Lecture 5 - Supply Supply Law of supply: Ceteris paribus, the higher the price of a good, the greater is the quantity supplied; the lower the price of a good, the smaller is the quantity supplied. Key parts: 1. Ceteris paribus – we’ll learn the conditions momentarily 2. Cet. par., higher price higher quantity supplied. Lower price lower quantity supplied. Just the opposite of demand. 3. Terminology: quantity supplied, not supply. Why does an increase in price cause an increase in quantity supplied (i.e. why is supply upward sloping)? 1. Principle of rising marginal cost – the higher the rate of output, the higher will be the additional (marginal) cost of producing another unit. Rate: Q/U.T. Volume: Q/U.T. * time Graph. At a given moment, increasing the rate will cause MC to increase. More intuitively, think of the principle of rising marginal costs. The book does a good job of explaining this one: we allocate the best fields and best farmers to doing farm work. Similarly,
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This note was uploaded on 04/09/2008 for the course ECON 211 taught by Professor Johnson during the Spring '07 term at Clemson.

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econ 211 lecture 5 - Lecture 5 - Supply Supply Law of...

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