📈 IGCSE Economics – Chapter 8:
Supply
Definitions:
Term
Definition
Supply
The willingness and ability to SELL a product
Market
Supply
Total supply of a product in a MARKET
Extension in
Supply
A rise in the quantity supplied caused by a rise in the price of the product
itself
Contraction
in Supply
A fall in the quantity supplied caused by a fall in the price of the product
itself
Unit Cost
The average cost of production.
It is found by dividing total cost BY output
Direct Taxes
Taxes on the income and wealth of individuals and firms
Indirect Taxes
Taxes on goods and services
Tax
A payment to the government
Subsidy
A payment by a government to encourage the production/consumption of
a product
8.1 Definition of Supply:
Supply: The willingness and ability to SELL a product
8.2 Supply and Price
There is a positive (direct) relationship between price and quantity supplied.
This is known as the Law of Supply.
Law of Supply
As the price of a good rises, quantity supplied increases. As the price
falls, quantity supplied decreases
Why?
●​ Higher prices usually make production more profitable.
●​ Producers are encouraged to supply more.
●​ Lower prices reduce profitability, so producers supply less.
📈 Supply Curve
●​ Slopes upwards from left to right.
●​ Shows the positive relationship between price and quantity supplied.
8.3 Individual Supply and Market Supply
Individual Supply
The quantity supplied by one producer.
Market Supply
The total supply from all producers in the market.
It is found by adding together all individual supplies.
Extension in Supply
A rise in the quantity supplied caused by a rise in the price of the product itself
Contraction in Supply
A fall in the quantity supplied caused by a fall in the price of the product itself
8.4 Conditions of Supply
Change in Supply: Shifts in the supply curve
Increase in Supply: rise in price = supply curve shifts to the RIGHT
Decrease in Supply: fall in price = supply curve shifts to the LEFT
Supply depends on more than just price.
Factors affecting supply include:
Cost of Production:
●​ Higher production costs → Supply decreases.
●​ Lower production costs → Supply increases.
Examples:
●​ Higher wages.
●​ Higher electricity costs.
●​ Higher raw material prices.
Technology:
Improved technology usually increases supply because production becomes faster and more
efficient.
Government Policies:
Government actions can affect supply.
Examples:
●​ Taxes → Increase costs and reduce supply.
●​ Subsidies → Reduce costs and increase supply.
Natural Factors:
Weather and natural disasters affect supply, especially in agriculture.
Examples:
●​ Drought.
●​ Floods.
●​ Storms.
Common Mistakes:
❌ Supply means producing goods.
✅ Supply means producers are willing and able to sell goods.
❌ A higher price reduces supply.
✅ A higher price usually increases quantity supplied.
❌ Market supply is the same as individual supply.
✅ Market supply is the sum of all individual supplies.
Quick Summary:
✔ Supply is the quantity producers are willing and able to sell.
✔ There is a positive relationship between price and quantity supplied.
✔ Individual supply refers to one producer.
✔ Market supply is the total supply from all producers.
✔ Supply is affected by:
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Price
Cost of production
Technology
Government policies
Natural factors
Number of producers
Expectations