Supply (Edexcel A Level Business)

An Introduction to Supply

• Supply is the number of goods/services businesses are willing to sell at a given price in a specific time period

• There is a direct relationship between supply and price 

  • As the price increases, the quantity supplied increases

  • As the price decreases, the quantity supplied decreases

  • At higher prices, businesses are incentivised to supply more of the product

  • Hence the supply curve slopes upwards from left to right

A supply curve showing how a change in price will lead to a change in the quantity supplied (QS)

Diagram Analysis

• An increase in price from £7 to £9 leads to a move up the supply curve from point A to B

  • Due to the increase in price, the quantity supplied (QS) has increased from 10 to 14 units

• A decrease in price from £10 to £7 leads to a movement down the supply curve from point A to point C

  • Due to the decrease in price, the quantity supplied (QS) has decreased from 10 to 7 units

Factors Leading to a Change in Supply

• A change in price causes a movement along the supply curve

• A change in any other factor affecting supply will shift the entire supply curve to the left or right

  • These are called non-price factors affecting the supply 

Changes to any of the non-price factors affecting supply will shift the entire supply curve to the left or right

• E.g. If a firm's cost of production increases due to the increase in the price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products

• This causes a shift in supply from S to S₁. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units

A diagram showing how a change in any non-price factor of supply will shift the entire supply curve left or right  

Diagram Analysis

• The initial supply curve is seen at S

  • At a price of £7, 10 units are supplied

• If the price remains constant at £7 but supply decreases due to one of the non-price factors of supply (e.g. worker's wages increase), the entire supply curve shifts to the left from S to S₁

  • Supply has decreased from 10 to 2 units

• If the price remains constant at £7 but supply increases due to one of the non-price factors of supply (e.g. costs of production fall), the entire supply curve shifts to the right from S to S₂

  • Supply has increased from 10 to 20 units

Non-price Factors Affecting Supply