Drawing and interpretation of the supply diagram

Published by Patrick Mutisya · 14 days ago

IGCSE Economics – Supply Diagram

Cambridge IGCSE Economics (0455)

Topic: The Allocation of Resources – Supply

Objective: Drawing and Interpreting the Supply Diagram

In this lesson you will learn how to:

  • Identify the factors that cause a change in supply.

  • Draw a correctly labelled supply curve.

  • Interpret movements along the curve and shifts of the curve.

  • Explain the economic reasoning behind the shape of the supply curve.

1. The Law of Supply

The law of supply states that, ceteris paribus, the quantity supplied of a good rises when its price rises, and falls when its price falls.

Mathematically this can be expressed as:

\$ Qs = f(P) \quad \text{with} \quad \frac{dQs}{dP} > 0 \$

2. Drawing the Supply Curve

  1. Label the vertical axis Price (P) and the horizontal axis Quantity Supplied (Qs).

  2. Mark a series of price‑quantity pairs that reflect the law of supply (e.g., (P₁, Q₁), (P₂, Q₂) where P₂ > P₁ and Q₂ > Q₁).

  3. Plot the points on the graph and join them with a smooth upward‑sloping line.

  4. Label the line Supply (S).

Suggested diagram: Supply curve with price on the vertical axis and quantity supplied on the horizontal axis. Include a movement along the curve (from point A to B) and a shift of the whole curve (S to S’).

3. Interpretation of Movements

MovementWhat it Represents
Movement up the same curve (A → B)Increase in quantity supplied due to a rise in price; the supply curve itself has not shifted.
Movement down the same curve (B → A)Decrease in quantity supplied because price has fallen.
Shift of the whole curve to the right (S → S′)Increase in supply: at every price, producers are willing to supply more. Caused by factors such as lower input costs, technological improvement, more firms entering the market, etc.
Shift of the whole curve to the left (S → S′′)Decrease in supply: at every price, producers supply less. Caused by higher input costs, taxes, adverse weather, etc.

4. Factors that Shift Supply

Each factor causes the entire supply curve to move, not just a movement along the curve.

  • Input prices: Lower costs shift supply right; higher costs shift left.

  • Technology: Advances increase productivity, shifting supply right.

  • Number of sellers: More firms increase market supply.

  • Expectations of future prices: If producers expect higher future prices, they may withhold supply now, shifting current supply left.

  • Government policies: Taxes and regulations can increase costs (left shift); subsidies reduce costs (right shift).

  • Natural conditions: Good weather for agriculture shifts supply right; drought shifts left.

5. Example Question and Mark Scheme

Question: Draw a supply diagram for wheat and show how a fall in the price of fertilizer would affect the diagram. Explain the economic reasoning.

Answer outline:

  1. Draw the initial supply curve S₁.

  2. Label axes and indicate a point A on S₁.

  3. Show a new supply curve S₂ to the right of S₁, labelled “after fertilizer price falls”.

  4. Explain: A fall in fertilizer cost reduces the marginal cost of producing wheat. At each price, producers can now supply more, so the supply curve shifts right.

6. Quick Revision Checklist

  • Can you label the axes correctly?

  • Do you know the difference between a movement along the curve and a shift of the curve?

  • Can you list at least three factors that shift supply and state the direction of the shift?

  • Are you able to interpret a given supply diagram in words?