Supply (Copy)
2.4 Supply
2.4.1 Definition of Supply
- Supply = Quantity of a good/service producers are willing and able to sell at a given price in a given time period.
- Represented by an upward sloping supply curve (positive relationship).
2.4.2 Price, Supply and Quantity
- Law of Supply: As price ↑, quantity supplied ↑ (direct relationship).
- Illustrated on a supply curve:
- Extension of supply = movement up the curve (price rises → more supplied).
- Contraction of supply = movement down the curve (price falls → less supplied).
| Change | Movement | Example |
|---|---|---|
| Price rises | Extension of supply | Farmers supply more wheat at higher price |
| Price falls | Contraction of supply | Firms cut back on pizza supply if price drops |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course
2.4.3 Individual and Market Supply
- Individual Supply: Supply of one producer.
- Market Supply: Total supply of all producers at each price (aggregation).
Example:
- At $10 per burger:
- Ali’s shop supplies 5, Sara’s supplies 7, Omar’s supplies 8 → Market supply = 20 burgers.
2.4.4 Conditions of Supply (Non-price Factors → Shift in Supply Curve)
- A shift means the whole curve moves.
- Increase in supply = curve shifts right.
- Decrease in supply = curve shifts left.
| Condition (Factor) | Effect on Supply | Example |
|---|---|---|
| Costs of production | ↑ costs → supply ↓ | Higher wages → less output |
| Technology | Improved tech → supply ↑ | Automation boosts car production |
| Number of firms | More firms → supply ↑ | More bakeries → more bread |
| Indirect taxes | ↑ tax → supply ↓ | Higher petrol tax reduces supply |
| Subsidies | ↑ subsidy → supply ↑ | Govt subsidy → more solar panels |
| Weather (for agriculture) | Good weather → supply ↑ | Floods → rice supply falls |
| Producer expectations | Expect higher future prices → hold back supply now | Oil producers restrict supply if future prices expected higher |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course
Quick Examples for Exams
- Fall in sugar price → contraction of supply.
- Rise in laptop price → extension of supply.
- Improved technology in textile industry → increase in supply.
- Drought reduces cotton harvest → decrease in supply.
Memory Hooks
- Law of Supply = direct price–supply link.
- Movement = price change (extension/contraction).
- Shift = non-price factors (increase/decrease).
- Market supply = sum of all individual supplies.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course