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)
1050
1270
1490
16110
18130

Drawing the Supply Curve

  1. Plot the price on the vertical (Y) axis and quantity on the horizontal (X) axis.

  2. Mark each point from the supply schedule.

  3. Connect the points with a smooth upward‑sloping line.

  4. 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 \$P1\$ to \$P2\$, 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

  1. What would cause the supply curve for coffee to shift to the right?

  2. How does a tax on production affect the supply curve?

Try to answer in one sentence each before checking your notes.