Law of supply and the supply curve
The supply curve slopes upward from left to right: at higher prices producers supply more because profit margins improve and new firms find it worthwhile to enter. A movement along the supply curve (an extension or contraction) occurs only when the good's own price changes. A shift of the whole curve occurs when a non-price factor changes — costs of production, technology, government policy or the number of sellers.
Six factors that shift supply
A rightward shift means more supplied at every price; leftward, less. Shifters: costs of production (lower wages, materials or energy shift supply right); technology (improvements shift right); indirect taxes shift left while subsidies shift right; more producers shift right; a rise in a competing product's price makes producers switch, shifting the original good's supply left; and expectations of higher future prices may shift supply left.
Price determination and equilibrium
At the equilibrium (market-clearing) price, quantity demanded equals quantity supplied — no surplus or shortage. Above equilibrium, quantity supplied exceeds demanded (a surplus), so price is bid down; below it, demand exceeds supply (a shortage), so price is bid up. A rightward shift in supply drives equilibrium price down and quantity up, ceteris paribus. This is the price mechanism allocating resources.
Drawn from real examiner reports.
Do not shift both curves
A recurrent diagram error is shifting both supply and demand for a single-market change — removing an indirect tax shifts only supply right. Shifting both shows you do not know which curve is affected. And failing to label the new curve, the new equilibrium price and the new equilibrium quantity forfeits those marks even when the shift direction is right.
A specific reminder that shifting both curves fails to demonstrate understanding of the scenario appeared in the November 2024 Paper 1 examiner report (Q1g). The June 2024 Paper 1 report (Q1g) noted that many candidates did not label either the new supply curve or the new equilibrium P and Q, and therefore did not score full marks.
Extension of supply is not an increase
When the good's own price rises, the correct term is an extension of supply (a movement along the curve), not an increase in supply. An increase in supply means the whole curve shifts right because a non-price factor changed. Confusing the two produces wrong diagram analysis and loses marks in explain and analyse questions.
Examiners noted that weaker responses in November 2024 Paper 1 described price changes as causing shifts in the supply curve rather than movements along it, demonstrating a fundamental misunderstanding of the supply model.
Explain: reason needs context + consequence
A reason stated without (a) context and (b) a developed cause or consequence earns only 1 of 3 marks on an Explain. Examiners want: a reason (1), the point in context (1), and a developed cause or consequence (1). For a 6-mark Explain, three such marks are spread across knowledge, application and analysis.
Examiner report June 2024 Paper 1 (Q1h): only one mark for reason alone — marks two and three required context and a developed cause/consequence.
Surplus vs shortage direction
A surplus is when quantity supplied exceeds quantity demanded (price above equilibrium), so price is bid down. A shortage is when quantity demanded exceeds quantity supplied (price below equilibrium), so price is bid up. Reversing these — or calling excess supply a shortage — loses marks in equilibrium questions.
Equilibrium is where Qd = Qs
Equilibrium is the price where quantity demanded equals quantity supplied — where the supply and demand curves intersect — not merely where the curves "touch" at any point. Reading equilibrium off the wrong intersection, or off one curve alone, gives the wrong price and quantity.
Subsidy shifts supply right, tax left
A per-unit subsidy lowers producers' costs and shifts supply right (lower equilibrium price, higher quantity). An indirect tax raises costs and shifts supply left (higher price, lower quantity). Getting the direction backwards — or shifting demand instead of supply — reverses the whole market outcome.
Structure a 12-mark Assess answer
Top Level 3 needs both sides developed and applied to the data, not a list of pros and cons. Structure: define the term, argue the case FOR using the data, argue AGAINST using other evidence, then reach a supported judgement rather than sitting on the fence.
Removing a tax: shift supply right only
When a tax is removed or a subsidy granted, shift only the supply curve right to S2 and label the new, lower equilibrium price and higher quantity. Do not move the demand curve. Label S2, the new price and the new quantity to earn all the diagram marks.
One developed chain beats a list
On Analyse and Explain questions, one fully developed chain — reason, applied to context, consequence developed — outscores five undeveloped points. Pick the strongest cause and follow it through to the effect on price, quantity or output.
Supply is the amount of a good or service that producers are willing and able to offer for sale at a given price in a given time period.
The law of supply: ceteris paribus (all other things equal), as the price of a good rises, the quantity supplied rises. This gives the supply curve its upward slope.
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