Cambridge O Level Economics: Supply, and equilibrium and disequilibrium prices (2281)

This guide covers sections 2.4 (Supply) and 2.5 (Price determination) of the Cambridge O Level Economics 2281 syllabus for examination in 2026. The course is not tiered, so everything here is for every candidate. Calculators may be used in both papers, and the syllabus says multiple-choice questions may include calculations. Every market, farm and number below is invented for practice.

Section 2.3 (demand) is covered separately. This guide assumes you know that a demand curve slopes downwards. For quick recall use the revision notes, and to test yourself use the practice questions. The Cambridge O Level Economics hub and the printable checklist show the whole course, and the free diagnostics help you find weak spots.

What you need to be able to do

Section	Outcome	Where in this guide
2.4.1	Define supply; draw and interpret supply diagrams	Supply and the supply curve
2.4.2	Use a supply curve to show extensions and contractions	Movements along the curve
2.4.3	Link individual supply to market supply (aggregation)	From individual to market supply
2.4.4	Explain causes of shifts: increase and decrease in supply	Conditions of supply
2.5.1	Use schedules and curves to find equilibrium price and sales	Market equilibrium
2.5.2	Identify disequilibrium prices, shortages and surpluses	Market disequilibrium

Supply and the supply curve (2.4.1)

Supply is the amount of a good or service that producers are prepared and able to offer for sale at each possible price during a stated period. Both words matter. A firm may be willing to sell but unable, for example because it has no stock or workers.

A supply schedule is a table of prices and quantities supplied. A supply curve plots it. Price goes on the vertical axis and quantity per period goes on the horizontal axis. The curve slopes upward because a higher price usually brings a higher quantity supplied:

• A higher price means more revenue on each unit, so selling extra units is more profitable.
• Producing more often raises the cost of each extra unit (overtime pay, poorer land, more expensive inputs), so a producer needs a higher price to cover it.
• A high price attracts new sellers into the market.

Price
  |                    / S
  |                  /
  |                /
  |              /
  |            /
  +-------------------- Quantity per week

Label the curve S and the axes Price and Quantity, with a time period, so that anyone can read the diagram.

Movements along the curve (2.4.2)

You move along a supply curve only when the price of the good itself changes. A rise in price causes an extension of supply. A fall in price causes a contraction of supply. The curve itself stays where it is.

Our running example is a town market for dried apricots in Country A (price per kg in currency units, cu; quantity in kg per week).

Price (cu per kg)	10	20	30	40	50
Quantity supplied (kg)	20	60	100	140	180

Worked example. The price rises from 20 to 40. Quantity supplied rises from 60 to 140, an extension of 140 - 60 = 80 kg. As a percentage that is 80 / 60 x 100 = 133.3%. If the price falls back from 40 to 20, supply contracts by 80 kg, which is 80 / 140 x 100 = 57.1% of 140. The same 80 kg gives different percentages because the starting point differs.

From individual to market supply (2.4.3)

Individual supply is what one firm or farm offers. Market supply is the total of all sellers’ supply at each price. This is aggregation: add the quantities at each price (a horizontal sum).

Three farms sell apricots in the market:

Price (cu per kg)	Farm 1	Farm 2	Farm 3	Market supply
10	0	5	15	20
20	20	15	25	60
30	40	30	30	100
40	60	40	40	140
50	80	55	45	180

Check the price 30 row: 40 + 30 + 30 = 100. At that price Farm 3 provides 30 / 100 = 30% of the market.

Two points follow. First, market supply is flatter than any single farm’s curve, because each price brings output from all of them. Second, if the number of sellers changes, the whole market curve shifts. If a fourth farm joins and offers 10 kg more at every price, market supply becomes 30, 70, 110, 150 and 190 kg. Remember that you add across sellers at the same price. Do not add prices.

Conditions of supply (2.4.4)

A condition of supply is any factor other than the good’s own price that changes how much producers will offer at every price. A change in one gives a shift of the whole curve:

• Increase in supply: the curve shifts right (or down). More is offered at each price.
• Decrease in supply: the curve shifts left (or up). Less is offered at each price.

Condition	Change	Effect on supply
Costs of production (wages, raw materials, energy, rent)	Fall	Increase
	Rise	Decrease
Technology and productivity	Improvement	Increase
Indirect tax on sellers (per unit)	Introduced or raised	Decrease
Subsidy to producers	Introduced or raised	Increase
Number of sellers	Rises	Increase
	Falls	Decrease
Weather and natural events (farming, fishing)	Good conditions	Increase
	Drought, flood or disease	Decrease
Producers’ expectations or regulation	Producers expect a better price later, or rules make production dearer	Decrease

Each row works through cost. Anything that makes it cheaper or more profitable to produce lets firms offer more at the old price. Anything that raises costs or cuts the output possible does the opposite.

Worked example (increase). A new drying machine lets farms offer 80 kg more at every price. The new schedule is 100, 140, 180, 220 and 260 kg at 10, 20, 30, 40 and 50 cu. At 30 cu the increase is 80 / 100 = 80%.

Worked example (decrease). A tax of 10 cu per kg is placed on sellers. A farm that needs 30 cu to supply 100 kg now needs 40 cu, because 10 cu goes to the government. So at every price, quantity supplied equals the old quantity at 10 cu less. The new schedule is 0, 20, 60, 100 and 140 kg at 10, 20, 30, 40 and 50 cu. (At 10 cu the old schedule less 40 would be -20, so the farms supply nothing.) That is 40 kg less at every price where supply continues, a leftward shift.

Say “movement” when price changes and “shift” when anything else changes. The words contraction and decrease are not interchangeable.

Market equilibrium (2.5.1)

Equilibrium is the state in which the quantity demanded equals the quantity supplied at the market price. The price at which this happens is the equilibrium price; the quantity traded at it is the equilibrium quantity (equilibrium sales). At this price buyers can buy what they want and sellers can sell what they want, so nothing pushes the price either way.

Demand for apricots is:

Price (cu per kg)	10	20	30	40	50
Quantity demanded (kg)	180	140	100	60	20

Put it beside the supply schedule from earlier:

Price	Qd	Qs	Gap (Qd - Qs)	Position
10	180	20	160	Shortage
20	140	60	80	Shortage
30	100	100	0	Equilibrium
40	60	140	-80	Surplus
50	20	180	-160	Surplus

The equilibrium price is 30 cu per kg and equilibrium sales are 100 kg per week. On a diagram, the demand curve D slopes down, the supply curve S slopes up, and the equilibrium is where they cross. Draw a dotted line from the crossing to the price axis and to the quantity axis, and label both values.

You can also solve from equations. Here Qd = 220 - 4P and Qs = 4P - 20. Setting them equal gives 220 - 4P = 4P - 20, so 240 = 8P and P = 30. Then Q = 220 - 120 = 100.

Market disequilibrium (2.5.2)

Disequilibrium is a market price that differs from the equilibrium level, leaving Qd and Qs unequal.

• Shortage (excess demand): demand exceeds supply, which happens when the price is below equilibrium. At 20 cu, Qd = 140 and Qs = 60, a shortage of 80 kg.
• Surplus (excess supply): supply exceeds demand, which happens when the price is above equilibrium. At 40 cu, Qs = 140 and Qd = 60, a surplus of 80 kg.

In a free market the price moves back to equilibrium. At 40 cu: unsold stock builds up, so sellers cut prices to clear it; buyers take more (an extension of demand) while sellers offer less (a contraction of supply), until the gap closes at 30 cu. At 20 cu: buyers compete for scarce stock and offer more, sellers see they can charge more and supply more, and the price rises towards 30. Away from equilibrium, actual sales equal the lower of Qd and Qs, since no one is forced to trade more than they choose.

Worked example (shift and new equilibrium). After the drying machine, supply is Qs = 4P + 60. Setting 220 - 4P = 4P + 60 gives 160 = 8P, so P = 20 and Q = 140. At the old price of 30, supply is now 180 against demand of 100: a surplus of 80, so the price falls. The increase in supply lowers price from 30 to 20 and raises sales from 100 to 140 kg.

After the tax, supply is Qs = 4P - 60, so 220 - 4P = 4P - 60 gives P = 35 and Q = 80. The price rises by 5 cu, which is less than the 10 cu tax, and sales fall by 20 kg.

Common errors

• Writing “shift” for a price-driven change, or “extension” for a change in costs.
• Drawing a supply curve that slopes down, or labelling the axes the wrong way round.
• Adding prices rather than quantities when finding market supply.
• Calling a surplus a shortage. A price above equilibrium gives a surplus; a price below gives a shortage.
• Reading equilibrium sales from the wrong schedule. Use the quantity where the two columns match.
• Describing a shift of demand when the question asks about supply.

Official syllabus

This page follows the Cambridge O Level Economics 2281 syllabus for examination in 2026 (version 2), published by Cambridge Assessment International Education. It covers sections 2.4 and 2.5.