2.2 Supply

The law of supply states that, ceteris paribus, a higher price causes a greater quantity supplied and a lower price causes a smaller quantity supplied over a stated period.

The own-price change alters the producer's incentive to offer units for sale while factor costs, technology, taxes, expectations and firm numbers remain constant. Rising marginal cost is the deeper HL explanation in Objective 2.2.2.

Identify the good's own price change, hold non-price determinants fixed, and predict a change in quantity supplied in the same direction.

If tomatoes rise from $2 to$3 per kilogram while production conditions are unchanged, growers may increase quantity supplied from 500 to 650 kilograms per day.

Supply means willingness and ability to sell, not all physical stock. The law is ceteris paribus and does not explain an observed change when production conditions also change.

A supply curve plots price on the vertical axis and quantity supplied per stated period on the horizontal axis. It normally slopes upward from left to right, representing the law of supply.

Every point pairs one price with the quantity producers are willing and able to sell, ceteris paribus. A supply schedule can be transferred point by point to the curve.

Label both axes and units, plot price–quantity pairs accurately, and describe the direct relationship without treating the line as a time trend.

If firms supply 100 units at $8 and 140 at$10, plot $(100,8)$ and $(140,10)$; the second point lies higher and farther right.

The curve represents a defined good, market and period and does not require identical costs across firms. Movements and shifts are assessed separately in Objective 2.2.6.

Individual supply is one producer’s schedule; market supply is the horizontal sum of quantities supplied by all producers at each price.

Entry, exit and different costs change market supply; add quantities at the same price.

Sum producer quantities at one price before plotting the market point.

At $5 three firms supply 2, 3 and 4 units, so market supply is 9 units.

Market supply is not the average of firm schedules.

Input prices, technology, taxes, subsidies, expectations, number of firms and natural conditions can change supply at every price.

Lower input costs or better technology usually shift supply right; a tax or disruption shifts it left, depending on incidence and capacity.

Name the determinant, direction and cost/incentive mechanism before predicting the shift.

A subsidy lowers effective production cost and may increase supply; a flood may reduce it despite unchanged product price.

A product’s own price is not a non-price determinant.

Prices of related goods can shift supply through competitive or joint production. If farmland can produce wheat or maize, a higher maize price may reduce wheat supply (competitive supply); if beef and leather are produced together, more beef production can increase leather supply (joint supply). Expected higher future prices may reduce current supply, while entry of firms shifts market supply right and exit shifts it left.

A movement along supply follows a change in the good’s own price; a shift follows a change in another supply determinant.

Confusing these changes reverses the diagram and the causal explanation.

Ask whether the good’s own price changed; if not, examine costs, technology, taxes, expectations or firms.

A rise in the market price moves up the curve; a cheaper battery shifts the supply of electric vehicles right.

A change in quantity supplied is not the same as a change in supply.