AP® Microeconomics review sheet from Aim for Five (aimforfive.com/micro/units/2/2-2)
Unit 2 · Topic 2.2
2.2 Supply
Supply shows how much sellers are willing and able to offer at each price. The law of supply says that a higher price leads to a larger quantity supplied, so the supply curve slopes upward. As with demand, a change in the good's own price moves you along the curve, while other factors shift it.
Key terms
- law of supply
- quantity supplied
- change in supply
- input costs
- technology
- number of sellers
The law of supply
Quantity supplied is the amount sellers offer at one specific price. Supply is the whole relationship between price and quantity supplied.
The law of supply: other things equal, a higher price leads sellers to offer more. On a graph with price on the vertical axis and quantity on the horizontal axis, the supply curve slopes upward. The reason: a higher price makes it worth producing units that cost more to make. As a firm pushes output higher, extra units usually cost more to produce (you'll see why in Unit 3), so it needs a higher price to cover them.
Market supply adds up every seller's quantity supplied at each price.
Movement along the curve vs. a shift
When only the good's own price changes, you get a change in quantity supplied: a movement along the curve.
A change in anything else that affects sellers causes a change in supply: the whole curve shifts. An increase in supply is a shift to the right (more is offered at every price). Because sellers are now willing to offer each quantity at a lower price, you can also picture it as a shift down. A decrease is a shift to the left, or up.
What shifts supply
| Determinant | Example and direction |
|---|---|
| Input prices | The price of flour rises, so the supply of bread decreases (shift left) |
| Technology | A faster oven lowers costs, so supply increases (shift right) |
| Taxes and subsidies | A per-unit tax on sellers decreases supply; a per-unit subsidy increases it |
| Producer expectations | Farmers expect higher prices next month, so they hold back some crop and supply decreases now |
| Prices of other goods the seller could make | The price of corn rises, so farmers plant less wheat and wheat supply decreases |
| Number of sellers | Several bakeries close, so supply decreases |
| Government regulation | A costly new safety rule raises production costs, so supply decreases |
Supply and demand are separate
Supply depends on sellers' costs and options; demand depends on buyers' wants and means. An event that changes what buyers want doesn't shift supply, even though it changes how much gets produced. If a fad raises demand for oat milk, the price rises and producers move up along their existing supply curve to a higher quantity supplied. Supply itself hasn't changed.
Some events hit both sides. A new tax on sellers shifts supply; a news story about health benefits shifts demand. Check which group the event affects directly.
Worked examples
Try each one yourself first, then open the solution.
- Example 1Calculator allowed
Building market supply from individual sellers
At a price of $4, Farm A supplies 10 crates of strawberries, Farm B supplies 15 and Farm C supplies 5. At $6, they supply 14, 20 and 9. What is market quantity supplied at each price? Does the market follow the law of supply?
Show the solutionHide the solution
- Step 1: Add across sellers at each price. At $4: 10 + 15 + 5 = 30 crates.
- Step 2: At $6: 14 + 20 + 9 = 43 crates.
- Step 3: Quantity supplied rises from 30 to 43 as price rises, which fits the law of supply.
Answer: 30 crates at $4 and 43 crates at $6; yes, it follows the law of supply.
- Example 2
Which curve moves? (classic trap)
In the market for pizza, decide what shifts and which way: (a) the price of cheese falls; (b) a popular diet tells people to avoid pizza; (c) the city gives pizzerias a $1 per pizza subsidy; (d) the price of pizza rises.
Show the solutionHide the solution
- Step 1: (a) Cheese is an input. Cheaper inputs lower costs, so supply increases: shift right.
- Step 2: (b) This affects buyers, not sellers. Demand decreases (shift left); supply does not move, though quantity supplied falls as price drops. Shifting supply here is the trap.
- Step 3: (c) A per-unit subsidy lowers sellers' costs, so supply increases: shift right (down by $1).
- Step 4: (d) A change in the good's own price is a movement along the supply curve: quantity supplied rises.
Answer: (a) supply right, (b) demand left only, (c) supply right (down by $1), (d) movement along supply.
Common mistakes
- Shifting supply when an event only affects buyers. Ask whether the event changes sellers' costs or options.
- Saying a decrease in supply is a shift 'down'. A decrease is a shift to the left, which on the graph also looks like a shift up.
- Getting the expectations effect backwards. If sellers expect higher prices later, they supply less now.
- Forgetting that a per-unit tax shifts supply up (left) by exactly the amount of the tax.
On the exam
- Questions often pair a determinant with a market and ask what happens to supply; be ready to explain why with the change in sellers' costs or incentives.
- On graphs, label the original curve S₁ and the new one S₂ and state the direction of the shift in words.
Connected topics
Videos
Check yourself
4 questions on 2.2 Supply. Pick an answer to see if you got it, and why.
The price of cocoa beans, the main input in chocolate, rises sharply. In the market for chocolate bars, the most likely result is
A new machine lets a factory make twice as many shoes with the same workers and materials. On a graph of the shoe market, this change is best shown by
An increase in the market price of strawberries, with nothing else changing, causes
A farmer can grow either corn or soybeans on the same land. If the price of soybeans rises, what is the most likely effect on the market for corn?
0 of 4 answered