PART F: THREE MARKET PERIODS AND INDUSTRY SUPPLY CURVES
Topic 9: THE SHAPE AND ASSUMPTIONS BEHIND INDUSTRY SUPPLY CURVES
Reading:
LR: Chapter 3 pp. 58 bottom to 63 top and Chapter 4 pp. 83 bottom to 85;
MP: Chapter 2 pp. 34 middle to 37 middle and Chapter 3 pp. 80 top to 85 middle.
Concept List:
the key assumption for all basic micro economic analysis is full factor employment i.e.,
every worker who wishes to work has a job
the meaning of an industry supply curve [the level of output which all firm in the industry
combined wish to produce at each price]
changes in supply versus changes in quantity supplied
market/momentary industry supply curve: production function [where industry output and all
inputs are fixed]
short run industry supply curve: production function [where capital is fixed and labour is
variable]
long run industry supply curve: production function [capital and labour are both variable]
constant cost [perfectly elastic] industry long run supply curve [no competitive bidding]
increasing cost industry long run supply curve [competitive bidding exists]
redefining assumptions behind industry supply curves
assumption 1: no innovation [Not: no change in technology]
assumption 2: no changes in the schedules of input prices [Not: no change in input
prices]
assumption 3: exogenous forces [e.g., weather conditions] are held constant
the elusive but important concept of competitive bidding
arc elasticity of supply [similar to the arc formula for price elasticity of demand]
shifts in industry supply curve: assumption: innovation occurs [long run only]
shifts in industry supply curve: assumption: input prices change [short run and long run]
shifts in industry supply curve: assumption: weather conditions change [short run
usually]