Supply shows how much sellers are willing and able to offer at each price. A change in the good's own price moves sellers along the supply curve; a change in anything else that affects sellers shifts the whole curve. Move the price, try the determinant scenarios on a wheat market, then drill yourself on shift versus movement.
The market for wheat. Price is in dollars per bushel and quantity is in thousands of bushels per month. The dashed grey line and point show where sellers started: S₁ at $5.00 and 50 thousand bushels.
Supply is the whole schedule of quantities sellers are willing and able to offer at each possible price, other things held constant. Quantity supplied is one number on that schedule, at one price.
Other things equal, a higher price raises the quantity supplied. A higher price makes each unit more profitable, so existing firms produce more and new output becomes worth making.
Producing more usually means overtime, less suitable land, and crowded equipment, so each extra unit costs more than the last. Sellers only supply those extra units if the price rises enough to cover the higher marginal cost.
Only a change in the good's own price causes it. The curve stays put and sellers slide to a new point on it.
A change in a determinant moves the whole curve. An increase in supply shifts it right (more at every price). A decrease shifts it left, which is the same as up: sellers need a higher price for each quantity.
Input prices, technology, number of sellers, taxes and subsidies, prices of other goods the producer could make, and producer expectations about future prices.
Memorize the direction for each row. On the exam, name the determinant, then the shift.
| Determinant | Example (wheat market) | Effect on supply | Why |
|---|---|---|---|
| Input (resource) prices rise | Fertilizer or farm wages cost more | Decrease (left) | Higher cost per unit makes each quantity less profitable |
| Input (resource) prices fall | Diesel fuel gets cheaper | Increase (right) | Lower cost per unit |
| Better technology | A higher-yield seed or faster harvester | Increase (right) | More output from the same inputs lowers cost per unit |
| More sellers | New farms start growing wheat | Increase (right) | Market supply adds up every seller's supply |
| Fewer sellers | Farms close or switch out of wheat for good | Decrease (left) | Fewer sellers to add up |
| Per-unit tax on producers | $1.50 tax on each bushel sold | Decrease (left, or up by the tax) | The tax works like a higher cost per unit |
| Subsidy to producers | $1.50 payment for each bushel sold | Increase (right, or down by the subsidy) | The subsidy works like a lower cost per unit |
| Price of another good the producer could make rises | Corn price rises; farmers can plant corn on the same land | Decrease in wheat supply (left) | Resources move to the more profitable good |
| Producers expect a higher price later | Farmers expect wheat prices to rise next season and store grain | Decrease today (left) | Sellers hold back output now to sell later at the higher price |
| Producers expect a lower price later | Farmers expect a price drop and sell stored grain now | Increase today (right) | Sellers sell now before the price falls |
| The good's own price changes | Wheat rises from $5 to $7 a bushel | No shift. Movement up along S | Price is on the axis, so it moves you along the curve |
AP-style multiple choice. Pick an answer to see the explanation.
The vocabulary for topic 1.5. Read the list, flip through flashcards, or quiz yourself. For every term in the unit, see the Unit 1 terminology guide.