Key Idea: Topic 2.2 explains what supply is, why the supply curve slopes upward, what shifts it, and how to tell a supply shift from a demand shift in exam questions.
✅ Core definitions
- Supply
- The quantity of a good producers are willing and able to sell at each price in a given time period.
- Law of supply
- As price rises, quantity supplied rises (positive relationship), ceteris paribus.
- Market supply
- The horizontal sum of all individual firm supply curves.
📈 Why supply slopes upward
- Profit motive — higher prices mean higher profit margins → firms produce more
- Law of increasing opportunity cost — producing additional units requires increasingly expensive resources
🔄 Non-price determinants (shift the curve)
- Costs of production — input prices (wages, raw materials, energy): costs↑ → S left
- Technology — improvements lower costs → S right
- Government intervention — indirect tax → S left; subsidy → S right
- Number of firms — more firms → S right
- Related goods — if producing alternatives becomes more profitable → S left for this good
- Future expectations — expected price rises → hold stock now → S left now
⚡ Movements vs shifts
- Movement along = change in the good's OWN PRICE only
- Shift = ANY non-price factor (costs, technology, government, firms, expectations)
- Demand shifts → identify by income, tastes, related goods. Supply shifts → identify by costs, technology, government
In an exam scenario: ask 'did PRICE change or did something ELSE change?' Price → movement. Anything else → shift.