Summary
Supply is the willingness of producers to offer goods or services at a given price. The quantity supplied is the amount producers are willing to supply. Example: If the price of apples increases, farmers may supply more apples.
- Market supply — the total amount of goods and services all producers are willing to supply. Example: All apple farmers together supply a certain amount of apples to the market.
- Law of supply — states that an increase in price leads to an increase in supply, and a decrease in price leads to a decrease in supply. Example: If the price of oranges rises, more oranges are supplied.
- Extension in supply — an increase in supply due to a price increase. Example: Price of bananas rises from 1.50, supply increases from 100 to 150 units.
- Contraction in supply — a decrease in supply due to a price decrease. Example: Price of bananas falls from 1, supply decreases from 150 to 100 units.
- Shift in supply curve — occurs when supply changes due to factors other than price. Example: A new technology allows more efficient production, shifting the supply curve right.
Exam Tips
Key Definitions to Remember
- Supply
- Quantity supplied
- Market supply
- Law of supply
- Extension in supply
- Contraction in supply
- Shift in supply curve
Common Confusions
- Confusing movement along the supply curve with shifts in the supply curve
- Misunderstanding the difference between individual supply and market supply
Typical Exam Questions
- What is the law of supply? The law of supply states that an increase in price leads to an increase in supply, and a decrease in price leads to a decrease in supply.
- How does a change in production cost affect supply? A decrease in production cost increases supply, shifting the supply curve to the right.
- What causes a shift in the supply curve? Factors like technological changes, resource availability, and production costs can cause shifts.
What Examiners Usually Test
- Understanding of supply and the law of supply
- Ability to interpret supply curves and identify shifts versus movements
- Knowledge of factors affecting supply and their impact on the supply curve