Cambridge IGCSE Economics 0455 – Allocation of Resources: Supply
Cambridge IGCSE Economics (0455)
Topic: The Allocation of Resources – Supply
Objective
To be able to draw and explain movements along a supply curve and to distinguish them from shifts of the entire supply curve.
Key Concepts
Supply curve: graphical representation of the relationship between the price of a good (\$P\$) and the quantity supplied (\$Q_s\$), ceteris paribus.
Movement along the supply curve: caused by a change in the price of the good itself.
Shift of the supply curve: caused by a change in any other determinant of supply (e.g., input prices, technology, expectations, number of sellers, taxes/subsidies).
Law of Supply
The law of supply states that, holding all else constant, an increase in the price of a good leads to an increase in the quantity supplied, and a decrease in price leads to a decrease in quantity supplied.
Mathematically this can be expressed as:
\$Qs = f(P), \quad \frac{dQs}{dP} > 0\$
Diagram: Movement Along the Supply Curve
Suggested diagram: A standard upward‑sloping supply curve labelled S. Mark two points A and B on the curve. Point A corresponds to a lower price \$P1\$ and quantity \$Q1\$; point B corresponds to a higher price \$P2\$ and quantity \$Q2\$. An arrow from A to B illustrates a movement up the curve due to a price rise.
Step‑by‑Step Explanation of a Movement
Assume the market price of the good rises from \$P1\$ to \$P2\$.
Producers find it more profitable to supply the good, so the quantity they are willing to sell increases from \$Q1\$ to \$Q2\$.
This change is represented by moving from point A to point B on the same supply curve \$S\$.
The supply curve itself does not move because no other determinant of supply has changed.
Contrast: Shift of the Supply Curve
When a factor other than the price changes, the whole supply curve shifts. The table below summarises the differences.
Factor
Effect on Supply Curve
Resulting Change in Quantity Supplied
Change in price of the good (\$P\$)
No shift – movement along the existing curve
Quantity supplied moves from \$Q1\$ to \$Q2\$ (or vice‑versa)
Change in input prices (e.g., wages, raw materials)
Supply curve shifts left (higher costs) or right (lower costs)
At any given price, a new quantity supplied \$Q'1\$, \$Q'2\$, …
Technological improvement
Shift right (increase in supply)
Higher quantity supplied at each price
Number of sellers increases
Shift right
Higher quantity supplied at each price
Expectations of future price rise
Shift left (producers hold back stock)
Lower quantity supplied at each price
Tax on production
Shift left (higher marginal cost)
Lower quantity supplied at each price
Subsidy to producers
Shift right (lower marginal cost)
Higher quantity supplied at each price
Practice Questions
Explain why a rise in the price of wheat from \$£0.30\$ per kilogram to \$£0.40\$ per kilogram leads to a movement along the supply curve for wheat farmers.
Identify which of the following would cause a shift of the supply curve for smartphones and explain the direction of the shift:
Decrease in the cost of micro‑chips.
Introduction of a new tax on electronic waste.
Improvement in production technology.
On a diagram, illustrate a movement along the supply curve for a good whose price falls from \$P3\$ to \$P4\$. Label the points and describe the economic reasoning.
Summary
A movement along the supply curve is caused solely by a change in the price of the good.
The supply curve itself remains unchanged during such a movement.
All other determinants of supply cause the entire curve to shift left (decrease) or right (increase).