Summary
The supply curve illustrates the relationship between the price of a good and the quantity supplied, showing how producers are willing and able to sell more at higher prices. Movements along the curve occur with price changes, while shifts in the curve result from non-price factors.
- Supply — the quantity of a good or service a producer is willing and able to sell at various prices during a given period of time, ceteris paribus.
Example: A farmer selling 100 apples at $1 each. - Law of Supply — states that price and quantity supplied have a direct relationship, ceteris paribus.
Example: As the price of oranges increases, more oranges are supplied. - Movement Along the Supply Curve — changes in quantity supplied due to price changes, resulting in an extension or contraction.
Example: Price increase from 22 leads to more units supplied. - Shift of the Supply Curve — changes in supply due to non-price factors, resulting in a rightward or leftward shift.
Example: New technology increases supply, shifting the curve right. - Non-Price Determinants of Supply — factors like production costs, technology, taxes, subsidies, and natural disasters that affect supply.
Example: A government subsidy lowers production costs, increasing supply.
Exam Tips
Key Definitions to Remember
- Supply
- Law of Supply
- Movement Along the Supply Curve
- Shift of the Supply Curve
- Non-Price Determinants of Supply
Common Confusions
- Confusing movement along the supply curve with shifts of the supply curve
- Misunderstanding the impact of non-price determinants on supply
Typical Exam Questions
- What happens to the supply curve when the price of a good increases? The quantity supplied increases, causing a movement along the supply curve.
- How does a government subsidy affect the supply curve? It lowers production costs, causing a rightward shift in the supply curve.
- What is the effect of a natural disaster on supply? It reduces the availability of resources, causing a leftward shift in the supply curve.
What Examiners Usually Test
- Understanding of the law of supply and its graphical representation
- Ability to distinguish between movements along and shifts of the supply curve
- Knowledge of how non-price determinants affect the supply curve