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C5 -Supply Concepts:

C5 -Supply Concepts:. Basic Concepts: theory Assumptions Shifters of Supply Price Elasticities of Supply Empirical examples. The Supply Function. Definition Assumptions Technology - Prices of inputs/output known fixed (price taker) Maximize profit (MR=MC) Theoretical link to MC

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C5 -Supply Concepts:

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  1. C5 -Supply Concepts: • Basic Concepts: theory • Assumptions • Shifters of Supply • Price Elasticities of Supply • Empirical examples

  2. The Supply Function • Definition • Assumptions • Technology - • Prices of inputs/output • known • fixed (price taker) • Maximize profit (MR=MC) • Theoretical link to MC • Shape - parameters

  3. Price Expectations • Output price risk • lag between production decision and harvest • forward contract • government program • Price expectations • Naïve expectations (Ezekiel 1938) • Adaptive expectations (Nerlov 1958) • Rational expectations (Muth, 1961) • Market supply function

  4. Supply Shifters • Technological change • input prices • Opportunity costs • other output prices • returns to fixed factors (land) • Structural change • Economies of size • Random events • Government policies • quotas • input constraints

  5. Price Elasticity of Supply • Definition • Factors that affect elasticity • substitutability (constraints) • length of adjustment period • short run - long run • U-shaped • aggregate goods more inelastic (asset fixity) • Empirical estimates

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