Drawing and interpretation of the supply diagram
The Allocation of Resources – Supply
What is Supply?
Supply is the amount of a good or service that producers are willing and able to sell at different prices over a given period. 📈
Key idea: The higher the price, the more producers want to supply.
Factors that Shift the Supply Curve
- Cost of production (e.g., wages, raw materials)
- Technology (better tools = more output)
- Number of sellers
- Expectations about future prices
- Government policies (taxes, subsidies)
Supply Schedule Example
| Price ($) | Quantity Supplied (units) |
|---|---|
| 10 | 50 |
| 12 | 70 |
| 14 | 90 |
| 16 | 110 |
| 18 | 130 |
Drawing the Supply Curve
- Plot the price on the vertical (Y) axis and quantity on the horizontal (X) axis.
- Mark each point from the supply schedule.
- Connect the points with a smooth upward‑sloping line.
- Label the curve “S” for Supply.
Mathematical Representation
The supply function can be written as:
$Q_s = a + bP$
Where a is the intercept (quantity supplied when price is zero) and b is the slope (how much quantity changes for a unit change in price). 📊
Interpretation of the Supply Curve
When the price rises from $P_1$ to $P_2$, the quantity supplied increases from $Q_{s1}$ to $Q_{s2}$.
Example: If the price of smartphones rises from $500$ to $600$, manufacturers will produce more units because the higher price covers higher production costs and offers greater profit.
Exam Tip: Supply Shifts vs. Movements
Remember: A movement along the supply curve happens when the price changes but supply factors stay the same. A shift of the supply curve occurs when any factor (cost, technology, etc.) changes, moving the entire curve left or right.
When answering diagram questions, always label the original curve (S₁) and the new curve (S₂) and indicate the direction of the shift.
Analogy: The Farmer’s Market
Think of a farmer deciding how many apples to bring to the market.
- If apples are sold at $2 each, the farmer brings 50 apples.
- If the price rises to $3, the farmer brings 70 apples because the higher price covers the cost of more labor and storage.
Just like the farmer, all producers respond similarly: higher prices → more supply.
Quick Check
- What would cause the supply curve for coffee to shift to the right?
- How does a tax on production affect the supply curve?
Try to answer in one sentence each before checking your notes.
Revision
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