OCR GCSE Economics: Supply, price elasticity of supply and price determination (J205) – Revision Notes

Use these notes for fast recall of sections 2.3 (Supply) and 2.4 (Price) of Topic 2, OCR GCSE (9-1) Economics (J205), version 2.0, first assessment 2019. Nothing here is tiered. The study guide gives the full reasoning; afterwards try the practice questions, mark progress on the checklist; more is on the course hub, and check gaps with a free 10-minute diagnostic. The figures below are made up for illustration.

2.3 Supply: key definitions

Term	Meaning
Supply	What producers will offer for sale at each price over a set time, if they are both willing and able
Law of supply	Higher price, larger quantity supplied (other things equal)
Individual supply	One producer’s schedule or curve
Market supply	Sum of all producers’ quantities at each price
Extension / contraction	Slide along S after the good’s own price moves
Increase / decrease in supply	Shift of the whole curve (right / left) caused by any other factor
PES	Proportionate response of output to price: %Q supplied ÷ %P

Supply curve from data: steps

1. Label the side axis price and the bottom axis quantity, with units.
2. Even scales; plot every pair from the table.
3. Join the points; the line slopes up to the right.
4. Label it S. For market supply, add producers’ quantities at each price first.

Reminder: a stall sells jars at £5, £6, £7 for 24, 42, 60 jars; a second stall sells 20, 30, 40. Market supply is 44, 72, 100.

Movements versus shifts

Cause	Effect on supply curve
Own price changes	Movement along S
Costs of production rise	Shift left
Costs fall	Shift right
Better technology	Shift right
Tax on production	Shift left
Subsidy	Shift right
More producers	Shift right
Fewer producers	Shift left
Bad weather (farming)	Shift left

Also in this group: prices of goods producers could make instead, and expectations of future prices.

Consequences. Supply increases: price falls, quantity rises, consumers gain lower prices and more choice, but producers’ revenue per unit falls. Supply decreases: price rises, quantity falls, consumers pay more and buy less, and producers may see revenue fall if demand is elastic.

PES

Method in steps

1. Find the rise or fall in price and in quantity (new minus old).
2. Turn each into a percentage of its starting figure.
3. Divide % change in quantity by % change in price.
4. State the type and what it means.

Worked reminder. Price rises from £8 to £10; quantity rises from 320 to 416.

• % price = 2 ÷ 8 × 100 = 25%
• % quantity = 96 ÷ 320 × 100 = 30%
• PES = 30 ÷ 25 = 1.2, elastic: output rises by more than price.

PES	Name	Curve
0	Perfectly inelastic	Straight up and down
Above 0, below 1	Inelastic	Steeper line that meets the quantity axis
1	Unit elastic	Straight line that would pass through the origin
Above 1	Elastic	Flatter line that meets the price axis
Infinite	Perfectly elastic	Horizontal

Determinants: spare capacity, stocks, time, factor mobility, length of production, perishability, ease of entering the market.

Why PES matters

• Producers: elastic supply lets them respond to a price rise by expanding quickly; inelastic supply means missed sales and, when demand falls, stuck output.
• Consumers: inelastic supply makes prices jump when demand rises or supply is hit; elastic supply keeps prices steadier.
• Evaluation: PES differs between the short and long run, and between firms. A firm with spare capacity has more choice than one running at full capacity. Costs of holding stock or expanding can outweigh the gain.

2.4 Price

Price does three jobs

• Signal: tells producers and consumers where demand is high or low.
• Incentive: rewards producers who supply more and consumers who buy less when price is high.
• Rationing: decides who gets scarce goods: those willing and able to pay.

Resources move to uses where consumers show most demand. This is price’s role in an efficient distribution of resources. Price reflects ability to pay as well as need, so an outcome can be efficient but not fair.

Equilibrium: quantity demanded = quantity supplied. The diagram shows D and S crossing at the equilibrium price (vertical axis) and equilibrium quantity (horizontal axis).

Worked reminder. Marmalade stall market (illustrative):

Price	Demand	Supply
£5	90	24
£6	75	42
£7	60	60
£8	45	78
£9	30	96

• Equilibrium: £7 and 60 jars.
• At £5: 90 − 24 = 66 excess demand. Price rises.
• At £9: 96 − 30 = 66 excess supply. Price falls.

A supply shift. Suppose supply rises by 33 jars at every price: new supply is 57, 75, 93, 111, 129. At £6 demand (75) equals supply (75), so the new equilibrium is £6 and 75 jars. Price falls by 14.3% (1 ÷ 7) and quantity rises by 25% (15 ÷ 60). Revenue moves from £7 × 60 = £420 to £6 × 75 = £450.

Four steps for any change

1. Demand or supply?
2. Left or right?
3. New equilibrium: state price and quantity.
4. Who gains and who loses?

What moves	Effect on price	Effect on quantity
D to the right	Rises	Rises
D to the left	Falls	Falls
S to the right	Falls	Rises
S to the left	Rises	Falls

Role of markets: with no central planner, buyers’ and sellers’ decisions respond to price and settle what is produced and for whom. Limits: markets may under-provide goods people need but cannot afford, and some effects fall on third parties.

Chains of reasoning to learn

Cost rise (analysis). Higher input costs, so less is worth supplying at each price; the supply curve shifts left; at the old price demand now exceeds supply; price rises; the higher price contracts demand and extends supply along the new curve until they match; consumers pay more and buy less; producers sell fewer units at a higher price, so revenue could rise or fall depending on how responsive buyers are.

Demand boom with inelastic supply (evaluation). Demand shifts right; producers cannot expand quickly because of full capacity or a growing season; price rises sharply while quantity rises little; consumers lose, existing producers gain revenue, new firms may enter later. Judgement: the gain to producers lasts only until supply becomes more elastic over time, so the longer the period, the smaller the price effect.

Demand boom with elastic supply. Producers have spare capacity or stocks; quantity rises a lot, price rises little; both groups gain, and the main limit is whether extra output raises cost per unit.

Sketch checklist

• Axes: price (vertical), quantity (horizontal).
• Original curves labelled D and S; shifted curve labelled S1 or D1.
• Original equilibrium marked with its price and quantity; the new one marked in the same way.
• An arrow showing the direction of the shift.
• For PES sketches, say which axis the extended line meets.

Must-know distinctions

• Extension against increase: the first is a slide caused by the good’s price; the second is a shift caused by anything else.
• Willing versus able: both are needed for supply.
• Excess demand (the price is under equilibrium) against excess supply (the price is over it).
• Elastic versus inelastic: judge by whether PES is above or below 1, not by how “big” the numbers feel.
• Price elasticity of supply versus of demand: the first uses quantity supplied.

Quick self-test

1. Define supply.
2. A bakery’s own price falls. Movement or shift?
3. Give two causes of a rightward shift of supply.
4. At £2, three firms supply 12, 8 and 5 units. What is market supply?
5. Price rises by 12% and quantity supplied by 30%. Calculate PES.
6. A product has PES of 0.4. Is it elastic or inelastic?
7. What does a perfectly inelastic supply curve look like?
8. Demand falls. What happens to equilibrium price and quantity?
9. At a price, demand is 40 and supply is 100. What is the gap, and what happens to price?
10. Price £6, quantity 75. Calculate total revenue.
11. Name two determinants of PES.

Answers

1. The quantity of a good that producers are willing and able to sell at each price in a given period.
2. A movement along the curve (a contraction).
3. Any two of: lower costs, better technology, a subsidy, more producers.
4. 12 + 8 + 5 = 25 units.
5. 30 ÷ 12 = 2.5 (elastic).
6. Inelastic, because PES is below 1.
7. A vertical line.
8. Both fall.
9. Excess supply of 60 (100 − 40); price falls.
10. 6 × 75 = £450.
11. Any two of: spare capacity, stocks, time, factor mobility, production period, perishability.

Where marks are usually lost

• Explaining only one side of a market change; the cause on one curve must lead to a new price and a new quantity.
• Calling a price change a “shift” of supply.
• Using the change in units instead of the percentage change in PES.
• Forgetting to divide by the original value when finding a percentage change.
• Giving definitions without applying them to the product in the case study.
• Evaluation that lists points but never says which matters most or when.
• Unlabelled axes, curves or equilibrium points on sketches.
• Treating PES as fixed rather than dependent on time and spare capacity.

Official syllabus

OCR GCSE (9-1) Economics (J205). Version 2.0, June 2026. First assessment 2019. The checklist used here is Topic 2, sections 2.3 and 2.4.