📈 Same axes as demand
Price goes on the vertical axis and quantity on the horizontal axis, exactly as for demand.
Demand, Supply and Equilibrium » Supply and the Supply Curve
What you'll learn this session
Study time: 30 minutes
Edexcel spec: 1.1.3 (d)-(e)
- What economists mean by supply
- How to read a supply schedule
- How to draw a supply curve and why it slopes upwards
- The difference between a movement along the curve and a shift of the curve
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Unlock This CourseWhat is supply?
Last lesson was about buyers. Now we look at the other side of the market: the firms that sell. Demand shows what consumers will buy. Supply shows what producers will sell.
Key terms:
- Supply: the quantity of a good or service that producers are willing and able to sell at a given price in a given period of time.
- Quantity supplied: the amount producers will sell at one particular price.
Just like demand, supply has two parts. Producers must be willing to sell at that price, and able to produce the goods. A farmer with no land cannot supply wheat, however high the price. And a farmer with plenty of land will not supply wheat if the price is too low to be worth the effort.
Supply is also about a certain price and a certain time. "Kenji will sell 300 kilograms of tomatoes" is not enough. "Kenji will sell 300 kilograms of tomatoes per week at a price of £3 per kilogram" is supply.
This topic is examined on Paper 1, Microeconomics and Business Economics.
The supply schedule
The higher the price of tomatoes, the more this grower is willing to supply each week
A supply schedule is a table that shows how many units producers will sell at each price. Kenji grows tomatoes in glasshouses and sells them to local shops. Here is his weekly supply.
| Price per kg (£) | Quantity supplied per week (kg) |
|---|---|
| 1 | 100 |
| 2 | 200 |
| 3 | 300 |
| 4 | 400 |
| 5 | 500 |
Look at the pattern. As the price rises, the quantity supplied rises. As the price falls, the quantity supplied falls. This is the opposite of the demand schedule, where a higher price meant a lower quantity.
Key term:
- Supply schedule: a table showing the quantity supplied at different prices.
Drawing the supply curve
A supply curve is a line on a diagram that shows the quantity supplied at each price. It is the supply schedule drawn as a picture. To draw Kenji's curve in the exam, follow these steps.
- Draw two axes. Label the vertical axis Price (P). Label the horizontal axis Quantity (Q).
- Mark prices going up the vertical axis (£1 to £5) and quantities along the horizontal axis (0 to 500).
- Plot each pair from the table as a point. For example, plot £1 against 100, and £5 against 500.
- Join the points with a straight line (or smooth curve) and label it S.
The line slopes upwards from left to right. It starts low on the left, where price is low and quantity is low, and ends high on the right, where price is high and quantity is high. This is the key difference from the demand curve, which slopes down.
🏷️ Always label
Label both axes and label the curve S. Unlabelled diagrams lose marks.
Why does the supply curve slope upwards?
Making extra output means overtime and more materials, one reason supply curves slope upwards
There are two simple reasons why producers supply more when the price is higher.
💰 More reward
A higher price means more money for every unit sold. Selling is more worthwhile, so producers want to make and sell more.
🏭 Higher costs of extra output
Making more often costs more per unit. Kenji might need extra workers on overtime pay or more heating. He will only produce these extra tomatoes if the price is high enough to cover the extra cost.
So a rise in price encourages producers to supply more, and a fall in price makes them supply less.
Movements along the supply curve
The price of tomatoes rises from £2 to £4 per kilogram. Nothing else changes. Kenji now supplies 400 kg instead of 200 kg. On the diagram you move up along the same curve. The curve itself stays where it is.
Key terms:
- Extension of supply: a rise in price causes quantity supplied to rise. You move up along the supply curve.
- Contraction of supply: a fall in price causes quantity supplied to fall. You move down along the supply curve.
The rule to remember: a change in the price of the good itself causes a movement along the curve. The curve does not move.
To show this in the exam, draw the curve S, mark the old point (P1, Q1) and the new point (P2, Q2) on the same line, and add an arrow along the curve between them.
Shifts of the supply curve
Sometimes producers want to supply a different amount at every price. Then the whole curve moves. This is a shift.
Suppose Kenji can now supply 100 kg more at every price. At £3 he supplies 400 kg instead of 300 kg. At £5 he supplies 600 kg instead of 500 kg.
| Price per kg (£) | Old quantity supplied (kg) | New quantity supplied (kg) |
|---|---|---|
| 1 | 100 | 200 |
| 3 | 300 | 400 |
| 5 | 500 | 600 |
▶️ Increase in supply
The curve shifts to the right. Draw a second curve, S1, to the right of S. More is supplied at every price.
◀️ Decrease in supply
The curve shifts to the left. Draw a second curve, S1, to the left of S. Less is supplied at every price.
Always describe a shift as right or left. This lesson is about what a shift looks like. The reasons why supply shifts are covered in the next lesson, What Shifts the Supply Curve.
Movement or shift?
Movement along the curve: the price of the good changes. One curve, two points.
Shift of the curve: supply changes at every price. Two curves, S and S1.
Worked example
Using Kenji's first schedule, what is the change in quantity supplied when the price falls from £4 to £2?
At £4 the quantity supplied is 400 kg. At £2 it is 200 kg. Quantity supplied falls by 200 kg. Because the price of the good itself changed, this is a contraction of supply, a movement down along the curve.
Common mistakes
- Saying a price change "shifts" the supply curve. A price change moves you along it.
- Drawing a supply curve that slopes downwards. Supply slopes up.
- Describing an increase in supply as the curve moving "up". It moves to the right.
- Forgetting to label S, S1, P and Q.
Exam-style question
A small company makes handmade candles. The table shows how many candles it will supply each week at different prices.
| Price per candle (£) | Candles supplied per week |
|---|---|
| 4 | 50 |
| 6 | 100 |
| 8 | 150 |
| 10 | 200 |
(a) Define supply. [2 marks]
(b) State the quantity supplied when the price is £8. [1 mark]
(c) The price rises from £6 to £10. Explain what happens on the supply curve diagram. [3 marks]
(d) Explain why the supply curve slopes upwards. [2 marks]
Model answer
(a) Supply is the quantity of a good or service (1) that producers are willing and able to sell at a given price in a given time period (1).
(b) 150 candles per week (1).
(c) A rise in the price of the candles themselves causes an extension of supply (1). Quantity supplied rises from 100 to 200 (1). This is shown as a movement up along the same supply curve, with no shift of the curve (1).
(d) A higher price gives producers more reward for each unit sold, so they want to supply more (1). Producing extra output can cost more per unit, so firms only supply more if the price is high enough to cover it (1).
Exam tip
In part (c), the price of the good changed, so write "movement along" and never "shift". Quote the figures from the table to earn the data mark.