• Supply is the amount of a good/service that a producer is willing & 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 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

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

Movements Along a Supply Curve

• 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 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 Q