IB DP Economics: Supply – Revision Notes

These notes follow the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. They cover sub-topic 2.2 Supply for SL and HL. Anything marked HL only is outside SL. Full explanations are in the study guide, then test yourself with the practice set.

Course navigation: IB DP Economics hub, the printable checklist, and a free 10-minute diagnostic to find weak spots. Supply is combined with demand in the demand, supply and market equilibrium guide.

Definitions to know

Term	Meaning
Supply	The quantities producers will and can offer at each price over a set period
Quantity supplied	The amount offered at one particular price
Law of supply	With nothing else changing, a rise in price raises quantity supplied
Supply curve	Upward-sloping line of price (vertical) against quantity per period (horizontal)
Individual supply	One producer’s quantities at each price
Market supply	All producers’ quantities added together at each price
Marginal cost	Extra cost of producing one more unit
Indirect tax	A tax on a good that adds to the producer’s cost per unit
Subsidy	A payment that lowers the producer’s cost per unit

The law and the curve in four lines

1. Price up, quantity supplied up. Price down, quantity supplied down.
2. This holds ceteris paribus: all non-price determinants stay unchanged.
3. The supply curve slopes upward.
4. Only the good’s own price slides you along the curve.

HL only: assumptions behind the law

Assumption	One-line explanation
Diminishing marginal returns	Beyond some point, each extra worker added to a fixed workshop brings a smaller gain in output
Increasing marginal costs	Because each extra worker adds less output, the cost of each extra unit rises

Link in three steps. Diminishing returns, so marginal product falls. Wage per worker stays the same, so marginal cost per unit rises. Producers need a higher price to cover it, so the supply curve slopes upward.

Worked reminder (HL only; illustrative). A workshop pays 90 tarns per worker per day. The third worker adds 15 units. Marginal cost per unit = 90 ÷ 15 = 6 tarns. If the fourth adds only 9, marginal cost = 90 ÷ 9 = 10 tarns.

Individual to market supply

Method in steps:

1. List each firm’s quantity at one chosen price.
2. Add the quantities.
3. Repeat at each price.
4. Plot the totals. The market curve sits further right than any single firm’s curve.

Worked reminder. At a price of 5, firm P supplies 20, firm Q supplies 35 and firm R supplies 15. Market supply = 20 + 35 + 15 = 70.

The six non-price determinants

Determinant	Change	Effect on supply	Shift
Costs of factors of production	Rise	Decrease	Left
Costs of factors of production	Fall	Increase	Right
Prices of related goods (competitive supply)	Price of the alternative rises	Decrease in supply of this good	Left
Prices of related goods (joint supply)	Price of one good rises, more of both are produced	Increase in supply of the other	Right
Indirect tax	Introduced or raised	Decrease	Left (up)
Subsidy	Introduced or raised	Increase	Right (down)
Future price expectations	Producers expect a higher price	Decrease now (storable goods)	Left
Technology	Improves	Increase	Right
Number of firms	More firms	Increase	Right

(Future price expectations: the reverse expectation of a lower later price raises supply now.)

Memory hook. Anything that raises cost per unit shifts S left. Anything that lowers cost per unit, or adds producers, shifts S right.

Related goods in one line each

• Competitive supply: same inputs, either good. Oats up in price, wheat supply down.
• Joint supply: produced together. Lamb up in price, wool supply up.

Tax and subsidy on the diagram

A per-unit tax lifts the supply curve by a vertical distance equal to the tax (equivalently, a shift left). A per-unit subsidy lowers it by the subsidy (equivalently, a shift right).

Worked reminder. A producer supplies 50 units at a price of 9. After a tax of 3 per unit, the producer needs 9 + 3 = 12 to supply the same 50. Under a subsidy of 3, the same 50 would be supplied at 9 - 3 = 6.

Movement or shift: decision rule

Ask: what changed?

• The good’s own price: movement along the same curve.
• Any of the six determinants: shift of the whole curve.
• Name the direction in words: “an increase in supply” for a right shift, “a decrease in supply” for a left shift.

Must-know distinctions

Pair	Difference
Quantity supplied vs supply	Quantity supplied is one point on the curve. Supply is the whole curve.
Movement vs shift	Own price changes the first. Any determinant changes the second.
Individual vs market supply	One firm’s schedule against the sum of every firm’s schedule
Joint vs competitive supply	Goods made together vs goods that compete for the same resources
Tax vs subsidy	One adds to cost per unit, the other lowers it

A three-sentence chain for any determinant

Use this pattern in an explain answer.

1. Name the change: “Wages in the industry rise.”
2. Say what it does to cost or output: “Each firm’s cost per unit is higher, so it will offer less at every price.”
3. Name the result on the diagram: “Supply decreases, shifting S1 left to S2.”

Worked reminder. Three identical firms each supply 20 units at a price of 6. A technology improvement means each now supplies 28 at that price. Market supply rises from 3 × 20 = 60 to 3 × 28 = 84 at a price of 6, a shift right of 24 units.

Drawing checklist

• Axes: price (vertical), quantity per period (horizontal).
• Curve labelled S. After a shift, S1 and S2.
• Arrow showing the direction of the shift or the movement.
• Old and new quantities marked on the horizontal axis.
• A short sentence naming the cause.

Command terms to link with 2.2

Command term	What to do
Define	Give the precise meaning
Outline	Brief account, no depth
Explain	Give reasons or causes
Distinguish	Make clear the differences
Draw	Accurate labelled diagram, ruler for straight lines
Calculate	Show the working

Quick self-test

1. State the law of supply.
2. Name the six non-price determinants of supply listed in the guide.
3. At a price of 5, firms P, Q and R supply 20, 35 and 15. Calculate market supply.
4. A government gives producers a subsidy. Which way does the supply curve shift?
5. Is a rise in the good’s own price a movement along or a shift of the curve?
6. A producer supplies 50 units at a price of 9. After a tax of 3 per unit, what price is needed to supply the same 50?
7. Give one example of joint supply and say what happens to the supply of the second good when the first rises in price.
8. Four identical firms each supply 25 units at a price of 8. Two more identical firms enter. Calculate the new market supply at 8.
9. Why might producers of a storable good reduce supply now if they expect a higher price next month?
10. HL only: a workshop pays 90 tarns per worker. A worker adds 15 units. Calculate the marginal cost per unit.
11. HL only: explain in two sentences how diminishing marginal returns gives an upward-sloping supply curve.

Answers

1. Other things equal, a higher price leads to a larger quantity supplied and a lower price to a smaller one.
2. Costs of factors of production; prices of related goods (joint and competitive supply); indirect taxes and subsidies; future price expectations; technology; number of firms.
3. 20 + 35 + 15 = 70.
4. Right (equivalently down): supply increases.
5. A movement along the curve.
6. 9 + 3 = 12.
7. Lamb and wool. If the price of lamb rises, more sheep are reared, so the supply of wool increases (shifts right).
8. Four firms supply 4 × 25 = 100. Six firms supply 6 × 25 = 150.
9. Holding stock back to sell at the higher expected price means less is offered today, so current supply decreases (shifts left).
10. 90 ÷ 15 = 6 tarns per unit.
11. With a fixed factor, each extra worker adds less output, so each extra unit costs more to make. Producers need a higher price to cover that rising marginal cost, so quantity supplied rises only as price rises.

Where marks are usually lost

• Saying a change in price “shifts” the curve, or that a tax “moves along” it.
• Leaving out the words ceteris paribus in a definition or explanation of the law.
• Drawing a supply curve that slopes downward or has unlabelled axes.
• Moving the curve in the wrong direction after a tax or subsidy. Tax means up and left, subsidy means down and right.
• Showing a shift on a diagram but never stating that supply has increased or decreased.
• Mixing up joint and competitive supply: the first raises both together, the second trades one for the other.
• In HL answers, stating diminishing returns without linking it to marginal cost and then to the slope of the curve.
• Giving a numerical answer to a calculate question with no working.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization (February 2020). Sub-topic 2.2 Supply.