What this lesson teaches
I can define supply, link one seller's supply to market supply, and draw a supply curve.
Syllabus K343, 2.3.1. Individual and market supply: definition of supply; link between individual supply and market supply; drawing and interpretation of the supply diagram
I can explain and draw extensions and contractions of supply as movements along the curve.
Syllabus K343, 2.3.2. Movements along a supply curve: causes of extensions and contractions in supply; diagrams that illustrate movements along a supply curve
Make a guess
The market price of durians rises. Does the supply curve for durians shift to the right?
- Yes. A higher price makes growers offer more, so supply shifts right.
- No. Quantity supplied extends along the same curve.
- No. Supply falls because durians become dearer.
Show the answer
No. Quantity supplied extends along the same curve.
A change in the good's own price moves sellers along the supply curve. The curve shifts only when a non-price factor changes.
Supply is what sellers are willing and able to sell at each price; a higher price raises quantity supplied.
Supply is the quantity of a good that sellers are willing and able to sell at each possible price, over a period of time.
As price rises, quantity supplied rises, other things being equal. A higher price makes production more profitable. Existing firms produce more, and new firms may join the market.
A supply curve slopes up from left to right. A change in the good's own price causes a movement along it. A rise in price causes an extension in supply. A fall in price causes a contraction.
Market supply is the total of all individual firms' supply. At each price, add up what every firm would sell.
- Supply
- Quantity sellers are willing and able to sell at each price over a period.
- Extension in supply
- Rise in quantity supplied caused by a rise in price.
- Market supply
- Sum of all firms' supply at each price.
Worked example: Why a farm grows more when prices rise
Suppose the price of durians rises from $8 to $12 per kilogram.
- Profit rises: each kilogram now earns more than it costs to grow.
- Existing farms respond: they look after more trees and harvest more carefully.
- New sellers join: other farms switch some land to durians.
- Result: quantity supplied extends along the supply curve.
Watch out for this
A higher price shifts the supply curve to the right.
A change in the good's own price moves along the supply curve. The curve shifts only when a non-price factor, such as costs, changes.
Check your understanding
Fish now sells for more than last week, and a new fish farm has started selling. Which of these two changes moves the whole supply curve?
- The higher price, because sellers now offer more fish for sale.
- The new fish farm, because more fish are offered at each price.
- Both changes, because each one raises the amount of fish offered.
Show the answer
The new fish farm, because more fish are offered at each price.
Right. A new producer adds to supply at every price, so the curve shifts right. The higher price only moves sellers along the curve.