Unit 1 - The Market System: Chapter 5: Supply Curve
The Market System: The Supply Curve
Learning Objectives
Understand the definition of supply.
Understand how price changes cause movements along the supply curve.
Understand the factors that cause the supply curve to shift.
Getting Started
Sellers or producers aim to satisfy consumer needs by providing goods and services.
A strong relationship exists between a good's price and the quantity supplied.
If prices are too low, sellers might not supply the market due to insufficient profit.
Supply and the Supply Curve
Supply: The amount of a good that sellers are willing to offer for sale at different prices during a specific time period.
Example: If the market price for chickens was CNY30, Tom Chang would sell 50 chickens a week; thus, his supply at that price is 50 chickens.
The relationship between price and quantity supplied can be expressed graphically using a supply curve.
Table 5.2 shows the supply schedule for handmade golf shoes by M. Crammer and Son.
Supply Schedule Example (M. Crammer and Son)
Table 5.2 provides a supply schedule of handmade golf shoes:
PRICE (US$) | QUANTITY OF GOLF SHOES (PER ANNUM) |
|---|---|
0 | 0 |
50 | 300 |
100 | 600 |
150 | 900 |
200 | 1200 |
250 | 1500 |
300 | 1800 |
350 | 2100 |
The supply curve is formed by plotting the quantity supplied at each price on a graph.
The supply curve slopes upward from left to right, indicating a proportionate relationship between price and quantity supplied.
When prices go up, supply also goes up.
When prices go down, supply also goes down.
Movement Along the Supply Curve
A price change results in a movement along the supply curve.
In Figure 5.1, an increase in price from US$200 to US$300 causes a movement along the supply curve from A to B, increasing the quantity supplied from 1200 to 1800 pairs of golf shoes.
This movement occurs only when the price changes.
Shift in the Supply Curve
A change in any factor other than price (e.g., production costs) causes a shift in the entire supply curve.
If production costs rise, the quantity supplied falls at every given price, shifting the supply curve to the left (e.g., from to in Figure 5.2).
If production costs fall, the quantity supplied rises at every given price, shifting the supply curve to the right (e.g., from to in Figure 5.2).
Factors Causing a Shift in the Supply Curve
Chapter 6 (pages 34-39) discusses these factors in detail.
Activity 1: Case Study - Steel Supply in a Country
Figure 5.3 shows the annual supply curve for steel in a particular country.
Steel Supply Case Study
Figure 5.3 illustrates the annual supply of steel for a particular country.
Fixed Supply
In some cases, the supply of a product or service may be fixed, resulting in a vertical supply curve.
Supply is fixed when sellers cannot increase supply, even if prices rise.
Example: Centre Court at Wimbledon has a capacity of 15,000 seats.
Even if ticket prices rise from £100 to £150, the supply remains fixed at 15,000 seats.