Supply
What is Supply?
Supply is the willingness and ability of producers to sell different quantities of a good at different prices, holding all else constant.
The supply of a good represents the different quantities producers are willing and able to sell at each price level. Supply is determined by factors like technology, input costs, and government policies. The law of supply states that supply curves slope upward, showing a positive relationship between price and quantity supplied.
Supply: a worked example
Say a bakery's supply schedule for sourdough is Qs = 30P - 20, with P in dollars per loaf and Qs in loaves per day. At $2 it offers 30(2) - 20 = 40 loaves. At $3 it offers 30(3) - 20 = 70. At $4 it offers 30(4) - 20 = 100. Each extra dollar brings out 30 more loaves, which is the law of supply in numbers. Now the oven breaks and daily capacity is cut in half, so at $3 the bakery can manage only 35 loaves. Price never changed, so that is the whole schedule shifting, not a movement along it.
The mistake students make with supply
Students write that a higher price 'increases supply.' It increases quantity supplied, and the two are different objects. Supply is the entire schedule of price and quantity pairs, so it changes only when something other than the good's own price changes: input costs, technology, the number of sellers, expectations, taxes and subsidies. The error is tempting because more units genuinely reach the market when price rises, so it feels like supply grew. On the graph, you only moved up an unchanged curve.
Supply questions
What is the difference between supply and quantity supplied?
Supply is the whole relationship between price and the amount sellers will offer, while quantity supplied is a single number read off that relationship at one price. A change in the good's own price moves you along the supply curve and changes quantity supplied. A change in input costs, technology, seller numbers, expectations or taxes moves the curve itself and changes supply. Swapping the two labels turns a correct shift answer into a wrong one.
What causes the supply curve to shift right?
A supply curve shifts right when sellers are willing to offer more at every price. Cheaper inputs do it, better technology does it, a per-unit subsidy does it, and more firms entering the market does it. Expecting a lower price later can do it too, since sellers push output into the present. Notice that none of these is the good's own price, which only slides you along the existing curve.
This is the live Supply and Demand sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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