Supply (Edexcel IGCSE Economics)

Introduction to Supply

Spec point — 1.1.3d

• Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period

• A supply curve is a graphical representation of the price and quantity supplied by producers

  • If the data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier

• The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied (QS)

  • Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits

• The law of supply states that there is a positive (direct) relationship between quantity supplied and price, ceteris paribus

  • When the price rises, the QS rises
  • When the price falls, the QS falls

Movement Along a Supply Curve

Spec point — 1.1.3e

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)

  • This change is shown by a movement along the supply curve

Diagram: Movement Along a Supply Curve

There is an extension in QS as prices increase and a contraction in QS as prices decrease

Diagram analysis

• An increase in price from £7 to £9 leads to a movement up the supply curve from point A to B

  • Due to the increase in price, the quantity supplied has increased from 10 to 14 units
  • This movement is called an extension in QS

• A decrease in price from £7 to £4 leads to a movement down the supply curve from point A to C

  • Due to the decrease in price, the quantity supplied has decreased from 10 to 7 units
  • This movement is called a contraction in QS