Author Question: Explain how price expectations can affect the supply of a product. What will be an ideal ... (Read 42 times)

Yi-Chen · **on:** Jun 29, 2018

Explain how price expectations can affect the supply of a product.

What will be an ideal response?

Question 2

What does it mean for a firm to be suffering an economic loss? Does this imply that the firm is earning negative profit in the accounting sense? Explain.

What will be an ideal response?

BAOCHAU2803 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If sellers expect the price of the product to rise in the future, they will want to hold onto their product and sell it at that time. Therefore, their current supply will fall. Likewise, if sellers expect the price of their product to fall in the future, they will want to sell as much of their product as possible today, increasing the supply.

Answer to Question 2

When a firm is suffering an economic loss, it is earning a below-normal rate of return. However, this does not imply that the firm is earning negative profit in an accounting sense. It is possible that the opportunity costs of owner-supplied factors of production are greater than the firm's accounting profit.