Short on time? This page is the recap. For explanations, graphs and worked examples, use the full study guide.
Recap
- Law of supply: other things equal, price and quantity supplied are positively related, so the supply curve slopes upward.
- Why: a higher price covers the rising cost of extra output (increasing opportunity cost), and draws resources into producing the good. (New sellers entering is a shift, not a movement along.)
- Market supply = the sum of all producers’ quantities supplied at each price.
- A change in the good’s own price → change in quantity supplied → movement along the curve.
- A change in any determinant → change in supply → the whole curve shifts.
Key relationships
| Determinant | Change | Supply curve |
|---|---|---|
| Input prices (wages, materials, energy) | Rise | Left (decrease) |
| Technology / productivity | Improves | Right (increase) |
| Number of sellers | Rises | Right (increase) |
| Price of an alternative product the firm could make | Rises | Left (decrease) |
| Expected future price | Rises | Left now (decrease) |
| Per-unit tax on producers | Imposed or raised | Left (decrease) |
| Per-unit subsidy to producers | Granted or raised | Right (increase) |
| Regulation | Costlier to comply | Left (decrease) |
Rule of thumb: higher cost per unit → left; lower cost per unit → right.
Graphing rules
- Price on the vertical axis, quantity on the horizontal axis, with units.
- Label every curve (S₁, S₂) and draw an arrow showing the direction of the shift.
- A rightward shift sits lower on the graph. An upward shift is a decrease in supply.
Assumptions
- Ceteris paribus: one curve holds every determinant fixed except the good’s own price.
- Supply shows what sellers are willing and able to offer, not what they actually sell.
- Out of scope: elasticity of supply and producer surplus (Microeconomics course). Equilibrium is Topic 1.6.
Mistakes to avoid
- Saying “supply rose” when only the good’s own price changed.
- Shifting supply because of a demand factor (income, tastes, number of buyers).
- Shifting supply right after an input price rise.
- Treating a tax and a subsidy as having the same effect.
- Adding prices across producers instead of quantities.
Quick self-check
VD is the valda, the currency of the fictional country Valdoria used in the study guide.
- Market supply is Qs = 20P − 10. The price rises from VD 4 to VD 6. What happens? (Quantity supplied rises from 70 to 110 units: a movement along the curve.)
- Two firms supply 30 and 45 units at a price of VD 8. What is market quantity supplied at VD 8? (75 units)
- Wages of farm workers rise. Which way does supply shift? (Left: a decrease in supply.)
Next: practice questions.