Economics - 0455 CIE

Supply

Overview

Behind every price tag sits a decision by firms about how much to make. Supply is the seller's side of the market: the quantities producers are willing and able to offer at each price. Get supply right and you can explain why petrol stations pump more when prices rise, why a good harvest lowers food prices, and why a new tax pushes prices up.

In this lesson you will define supply, build the market supply curve from individual firms, and draw it correctly. You will then master the single most tested distinction in the topic: a movement along the curve (an extension or contraction caused by price) versus a shift of the curve (an increase or decrease caused by everything else). By the end you will diagnose any supply change at a glance.

Objectives

definition of supply
link between individual supply and market supply
drawing and interpretation of the supply diagram
causes of extensions and contractions in supply
diagrams that illustrate movements along a supply curve
causes of decreases and increases in supply
diagrams that illustrate shifts of a supply curve

Lesson Note

Supply is one half of every market. Combined with demand it determines price and quantity, so it underpins price determination, elasticity and almost all of microeconomics. The classic exam trap, mixing up movements along the curve with shifts of it, is worth real marks, and this lesson fixes it for good.

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Lesson Evaluation

Congratulations on completing the lesson on Supply. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

According to the law of supply, an increase in a good's price will normally cause: A. a decrease in supply B. an extension in supply C. a leftward shift of the curve D. a contraction in supply Answer: B
Which of the following causes a shift of the supply curve, not a movement along it? A. a rise in the good's own price B. a fall in the good's own price C. a fall in the cost of raw materials D. nothing changes Answer: C
A government subsidy paid to producers will: A. shift the supply curve to the left B. shift the supply curve to the right C. cause a contraction in supply D. cause an extension in supply Answer: B
Market supply is found by: A. subtracting demand from supply B. adding up individual firms' supply at each price C. taking the lowest firm's supply D. multiplying price by quantity Answer: B
A new tax on producers of a good will most likely: A. increase supply B. decrease supply C. cause an extension in supply D. leave supply unchanged Answer: B