1.6 Supply

The Law of Supply

The law of supply states that as price rises, quantity supplied rises too, holding other factors constant — producers are willing to sell more at higher prices because it's more profitable. This creates an upward-sloping supply curve, showing a direct relationship between price and quantity supplied.

Movement vs. Shift

A change in quantity supplied is a movement along the curve caused only by a price change. A change in supply is a shift of the entire curve caused by non-price determinants: input/resource prices, technology, number of sellers, expectations, and prices of related goods (production substitutes). A rightward shift = increase in supply; leftward = decrease.

Individual vs. Market Supply

Individual supply is one producer's quantity supplied at each price. Market supply is the horizontal summation of all individual producers' supply curves at each price level, showing total quantity available in the market.

Key terms

Law of Supply

As price increases, quantity supplied increases, all else equal; creates an upward-sloping supply curve.

Change in Quantity Supplied

A movement along the supply curve caused only by a change in the good's own price.

Change in Supply

A shift of the entire supply curve caused by non-price determinants like input costs, technology, or number of sellers.

Determinants of Supply

Input/resource prices, technology, number of sellers, producer expectations, and prices of related goods.

Market Supply

The horizontal sum of all individual producers' supply curves, showing total quantity supplied at each price.

Try an AP-style question

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

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