Supply, Price & Quantity (SL IB Economics)

Revision Note

Steve Vorster

Expertise

Economics & Business Subject Lead

Introduction to Supply

  • Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period

  • A supply curve is a graphical representation of the price and quantity supplied by producers
    • If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
       
  • The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied (QS)
    • Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits
          
  • The law of supply states that there is a positive (direct) relationship between quantity supplied and price, ceteris paribus
    • When the price rises the QS rises
    • When the price falls the QS falls
       

Individual and Market Supply

  • Market supply is the combination of all the individual supply for a good/service
    • It is calculated by adding up the individual supply at each price level
        

The Monthly Market Supply of Bread from 4 Bakeries in a Small town


Bakery 1


Bakery 2

Bakery 3 Bakery 4 Market Supply

300

600 180 320 1400 loaves


  

  • Individual and market supply can also be represented graphically
      2-4-1-supply-price-and-quantity-1

Market supply for smart phones in December is predominantly the combination of iPhone and Samsung supply

Diagram Analysis

  • In New York City, the market supply for smart phones in December is predominantly the combination of iPhone and Samsung supply
  • At a price of $1000, the supply of iPhones is 300 units and the supply of Samsung phones is 320 units
  • At a price of $1,000, the market supply of smart phones in New York City during December is 620 units

Movements Along a Supply Curve

  • If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)
    • This change is shown by a movement along the supply curve
        

IIlRP6jh_1-2-4-movement-along-supply-curve_edexcel-al-economics

A supply curve showing an extension in quantity supplied (QS) as prices increase and a contraction in quantity supplied (QS) as prices decrease

Diagram Analysis

  • An increase in price from £7 to £9 leads to a movement up the supply curve from point A to B
    • Due to the increase in price, the quantity supplied has increased from 10 to 14 units
    • This movement is called an extension in QS
       
  • A decrease in price from £7 to £4 leads to a movement down the supply curve from point A to C
    • Due to the decrease in price, the quantity supplied has decreased from 10 to 7 units
    • This movement is called a contraction in QS

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.