Supply
Edexcel International A-Level EconomicsΒ· 1.3.3Β· 25 min read
1. What is Supply? Movements vs Shiftsβ β ββββ± 6 min
Supply
The quantity of a good or service that producers are willing and able to sell at a given price, over a specific time period, ceteris paribus.
Example:
A coffee roaster is willing to sell 500 bags of coffee per week at a price of $10 per bag.
The supply curve is upward sloping because higher prices create an incentive for producers to increase output, and higher-cost producers will enter the market at higher price points. Changes to the market cause two distinct types of change to supply:
Movement along the curve: Caused only by a change in the own price of the good, leading to an expansion (price rise) or contraction (price fall) of quantity supplied.
Shift of the curve: Caused by non-price factors, leading to an increase (right shift) or decrease (left shift) in supply at every price level.
Explain whether a 10% increase in the price of wheat causes a movement along or shift of the wheat supply curve.
- 1
Step 1: Identify the cause of the change: a rise in the own price of wheat, not a non-price supply factor.
- 2
Step 2: Conclude this causes a movement along the existing supply curve, specifically an expansion of quantity supplied, as higher prices incentivize wheat farmers to sell more.
2. Non-Price Factors Shifting the Supply Curveβ β β βββ± 7 min
Five core non-price factors cause shifts of the supply curve, all linked to changes in production costs or producer capacity:
Costs of production: Higher input costs (wages, raw materials) reduce supply (left shift); lower costs increase supply (right shift).
New technology: More efficient production reduces costs, increasing supply (right shift).
Indirect taxes: Specific (per-unit) and ad valorem (percentage) taxes raise production costs, reducing supply (left shift).
Subsidies: Government payments to producers reduce costs, increasing supply (right shift).
Supply shocks: Natural disasters, wars or harvest failures destroy production capacity, reducing supply (left shift).
Draw the effect of a government subsidy given to electric vehicle (EV) manufacturers on the supply curve for EVs.
- 1
Step 1: Label the y-axis Price (P) and x-axis Quantity of EVs (Qs).
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Step 2: Draw the original upward-sloping supply curve, labelled S.
- 3
Step 3: A subsidy reduces per-unit production costs for EV manufacturers, so producers are willing to supply more EVs at every price point.
- 4
Step 4: Draw the new supply curve to the right of S, labelled S1, with an arrow showing the rightward shift.
Exam tip:
When explaining supply shifts, always explicitly link the factor to producer costs or incentives for full KAA marks, e.g. 'higher raw material costs increase per-unit production costs, so producers supply less at every price, shifting supply left'.
3. Price Elasticity of Supply (PES): Definition & Calculationβ β β βββ± 6 min
Price Elasticity of Supply (PES)
A measure of the responsiveness of quantity supplied of a good to a change in its own price.
PES values are always positive because of the upward-sloping supply curve: price and quantity supplied move in the same direction. The table below outlines the interpretation of PES values and their corresponding curve shapes:
PES Value | Classification | Curve Shape |
|---|---|---|
0 | Perfectly inelastic | Vertical line |
0 < PES < 1 | Inelastic | Steep upward slope |
1 | Unitary elastic | Straight line passing through origin |
PES > 1 | Elastic | Shallow upward slope |
β | Perfectly elastic | Horizontal line |
Calculate PES if the price of coffee rises from $2 to $2.40, and quantity supplied rises from 1000 units to 1400 units. Interpret your result.
- 1
Step 1: Calculate percentage change in price: %ΞP = (2.40 - 2)/2 * 100 = 20%
- 2
Step 2: Calculate percentage change in quantity supplied: %ΞQs = (1400 - 1000)/1000 * 100 = 40%
- 3
- 4
Step 4: Interpretation: PES = 2 > 1, so supply of coffee is elastic: quantity supplied rises twice as fast in percentage terms as price.
4. PES Determinants & Short Run vs Long Runβ β β β ββ± 6 min
The elasticity of supply depends on five core determinants, with the time period being the most heavily tested in exams:
Time period: Short run (at least one fixed factor of production) β PES inelastic; Long run (all factors variable, firms can enter/exit market) β PES elastic.
Stock levels & perishability: Non-perishable goods with high stock levels have elastic PES; perishable goods that cannot be stored have inelastic PES.
Factor mobility: Ease of moving labour, capital and raw materials between uses: higher mobility = more elastic PES.
Capacity limits: If firms are operating at full production capacity, PES is inelastic.
Legal constraints: Government output quotas or licensing rules restrict supply, making PES inelastic.
Explain why the PES of fresh strawberries is more inelastic in the short run than the long run.
- 1
Step 1: In the short run, strawberry farmers have fixed quantities of land and pre-planted crops for the growing season. Strawberries are perishable and cannot be stored for long periods.
- 2
Step 2: If the price of strawberries rises, farmers cannot immediately increase output, as new crops take 3-6 months to grow, so quantity supplied responds very little to price changes, making PES inelastic.
- 3
Step 3: In the long run, farmers can plant more strawberries, expand land used for growing, and new farmers can enter the market, so quantity supplied can respond much more to price changes, making PES more elastic.
Exam tip:
When answering PES explanation questions, always explicitly reference the short run vs long run distinction, as this is a high-weight mark point for Edexcel examiners.
5. Common Pitfalls
Wrong move:
Confusing a movement along the supply curve with a shift when the price of the good itself changes.
Why:
Students mix up 'quantity supplied' (movement) and 'supply' (shift) terminology.
Correct move:
Only non-price factors shift the supply curve; own price changes only cause movements along the existing curve.
Wrong move:
Drawing a unitary PES curve that does not pass through the (0,0) origin point.
Why:
Unitary PES requires the ratio of Qs to P to be constant at all points, which only holds if the curve starts at the origin.
Correct move:
Always draw unitary PES curves as straight upward-sloping lines passing through the origin.
Wrong move:
Including tax incidence or welfare impacts when discussing taxes as a supply shift factor.
Why:
Tax incidence and welfare analysis are out of scope for this sub-topic, and only covered in later equilibrium units.
Correct move:
When discussing taxes/subsidies here, only explain that they change production costs, leading to a left/right supply shift respectively.
Wrong move:
Using the midpoint (arc elasticity) method for PES calculations unless explicitly instructed.
Why:
Edexcel IAL Economics expects the simple percentage change method using original values for all elasticity calculations by default.
Correct move:
Use %Ξ = (new - original)/original * 100 for percentage change calculations unless the question specifies the midpoint formula.
Wrong move:
Labelling supply curve axes incorrectly, e.g. x-axis as price and y-axis as quantity.
Why:
Up to 2 marks are lost for unlabelled or incorrectly labelled axes in diagram questions.
Correct move:
Always label the y-axis Price (P) and x-axis Quantity (Qs) for all supply curve diagrams.
6. Quick Reference Cheatsheet
Concept | Key Detail | Exam Reminder |
|---|---|---|
Supply definition | Willingness + ability of producers to sell at given price | State ceteris paribus for full definition marks |
Supply shift factors | Costs, tech, taxes, subsidies, supply shocks | Never list price as a shift factor |
PES formula | PES = %ΞQs / %ΞP | Use original values for % change by default |
PES values | <1 inelastic, =1 unitary, >1 elastic, 0 perfectly inelastic, β perfectly elastic | Match values to correct curve shapes for diagram questions |
PES determinants | Time period, stock/perishability, factor mobility, capacity, legal rules | Prioritize short run vs long run in explanation answers |
7. Frequently Asked
What is the difference between a movement along the supply curve and a shift?
A movement is only caused by a change in the own price of the good, leading to a change in quantity supplied. A shift is caused by non-price factors, leading to a change in supply at every price level.
How do I interpret PES values?
- PES = 0: perfectly inelastic (vertical curve, no output response to price)
- 0 < PES < 1: inelastic (output less responsive to price)
- PES = 1: unitary (output changes at the same rate as price)
- PES > 1: elastic (output more responsive to price)
- PES = β: perfectly elastic (horizontal curve, infinite output at fixed price)
Why is long-run PES always more elastic than short-run PES?
In the short run, firms have at least one fixed factor of production (e.g. factory size, land) and cannot easily change output. In the long run, all factors are variable, firms can expand capacity, and new firms can enter the market, so output responds much more to price changes.
Going deeper
What's Next
Now that you have mastered supply and PES, you are ready to move on to combining supply with demand to analyse market equilibrium, the next core topic in Edexcel IAL Economics Unit 1. You will also apply supply shift factors when studying government intervention (taxes, subsidies, price controls) and market failure in later units. Ensure you can draw all required supply diagrams accurately and explain PES differences in real-world contexts, as these are frequently tested in both multiple-choice and extended response questions. Practice PES calculation questions regularly to avoid arithmetic errors in your exam.