Supply

Cambridge IGCSE Economics 0455

Syllabus points

• Define supply and explain the law of supply.
• Distinguish a movement along from a shift of the supply curve.
• Explain the causes of changes in 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, other things being equal, as price rises quantity supplied rises. The supply curve slopes upwards, mainly because a higher price makes production more profitable.

Key definitions

Movement along versus a shift

• A change in the good's own price → a movement along the supply curve.
• A change in a non-price factor → a shift of the whole curve.

Causes of a change in supply (shifts)

• Costs of production — higher wages, raw material or energy costs shift supply left.
• Technology — better technology raises output, shifting supply right.
• Taxes and subsidies — an indirect tax shifts supply left; a subsidy shifts it right.
• Weather and disasters — especially for farming.
• Number of firms — more producers shift supply right.

Worked example

The government gives farmers a subsidy on wheat. Their costs fall, so at every price they will supply more — the supply curve shifts right (S1 → S2). In the market this tends to lower the price and raise the quantity traded (topic 2.5).

Common exam mistakes

• Confusing a shift (cost or technology change) with a movement along (own-price change).
• Treating a tax as a demand change — it raises firms' costs and shifts *supply*.
• Unlabelled diagrams.

Exam technique

Name the exact cause of any supply shift and its direction, then trace the effect on equilibrium price and quantity.

Quick revision

• Supply curve slopes up (profit motive).
• Own price → movement; costs, technology, taxes/subsidies, weather, number of firms → shift.