1.6 Supply

Law of Supply

The law of supply states that as the price of a good rises, the quantity supplied rises too, holding all else constant — a direct relationship. This creates an upward-sloping supply curve. A change in price causes movement along the curve, not a shift of the curve itself.

Determinants that shift supply

The entire supply curve shifts when non-price factors change: input/resource prices, technology, prices of other goods a producer could make, producer expectations, number of sellers, and taxes/subsidies. A decrease in input costs or a subsidy shifts supply right (increase); higher input costs or taxes shift it left (decrease).

Individual vs. market supply

Individual supply shows one producer's quantity supplied at each price; market supply is the horizontal sum of all individual producers' quantities at each price. More sellers entering a market shifts market supply rightward, increasing supply at every price level.

Key terms

Law of Supply

As price increases, quantity supplied increases, all else constant (direct relationship).

Supply curve

An upward-sloping graph showing the relationship between price and quantity supplied.

Determinants of supply

Input prices, technology, prices of related goods, producer expectations, number of sellers, taxes/subsidies.

Market supply

The horizontal sum of all individual producers' supply at each price level.

Effect of a subsidy on supply

Lowers production costs, shifting the supply curve rightward (supply increases).

Try an AP-style question

A rise in the cost of flour does what to the supply of bread?

1. Increases quantity supplied
2. No change
3. Increases it
4. Decreases it