Syllabus points
- Explain the law of supply and the shape of the supply curve.
- Distinguish a movement along from a shift of the supply curve.
- Explain the non-price determinants of supply.
The law of supply
Supply is the quantity of a good producers are willing and able to sell at each price over a period of time. The law of supply states that, *ceteris paribus*, as price rises quantity supplied rises. The supply curve slopes upwards.
The main reason is the profit motive: a higher price makes production more profitable, so firms expand output and new firms enter. Rising marginal costs of production also mean firms need a higher price to justify producing extra units.
Key definitions
| Term | Exam-ready definition |
|---|---|
| Supply | The quantity producers are willing and able to sell at each price. |
| Law of supply | As price rises, quantity supplied rises, *ceteris paribus*. |
| Movement along | A change in quantity supplied caused only by the good's own price. |
| Shift | A change in supply at every price caused by a non-price factor. |
Movement along versus a shift
- A change in the good's own price → a movement along the supply curve (change in *quantity supplied*).
- A change in a non-price factor → a shift of the whole curve (change in *supply*).
Non-price determinants of supply
- Costs of production — wages, raw materials, energy; higher costs shift supply left.
- Technology — improvements raise productivity and shift supply right.
- Indirect taxes — raise costs, shifting supply left; subsidies shift it right.
- Prices of related goods — firms may switch production to a more profitable good.
- Number of firms — more producers shift market supply right.
- Expectations and shocks — weather, disruptions, expected future prices.
Worked example
A government grants a per-unit subsidy to solar-panel makers. Their costs of production fall, so the supply curve shifts right (S1→S2). At the original price firms now supply more; in the market this tends to lower price and raise the quantity traded (links to 2.3).
Common exam mistakes
- Confusing a shift (cost/technology change) with a movement along (own-price change).
- Treating an indirect tax as a demand-side change — it raises firms' costs and shifts *supply*.
- Unlabelled diagrams.
Exam technique
Name the exact determinant causing the shift and its direction. When a tax or subsidy shifts supply, be ready to discuss who ultimately gains or bears the burden (links to 2.7).
Quick revision
- Supply curve slopes up (profit motive, rising marginal costs).
- Own price → movement; costs, technology, taxes/subsidies, number of firms → shift.