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Introduction to Supply

What supply means, the law of supply, and supply curves.

💡 Year 7 💰 Microeconomics ⭐ ★

What is Supply? The Law of Supply

You run a lemonade stand. When customers pay 50p a cup, you make 20 cups — it barely covers your effort. When they pay £3 a cup, you're squeezing lemons all day and enlisting your whole family. Higher prices incentivise more production. This is the Law of Supply.

Law of Supply: As price rises, quantity supplied rises (and vice versa), ceteris paribus.

Why? Higher prices: (1) make existing production more profitable, (2) attract new firms into the market, (3) justify higher variable costs like overtime labour.

🌾 The Farmer Analogy: When wheat prices are low, farmers grow other crops or leave fields fallow. When prices spike (drought elsewhere, rising demand), farmers plough every spare acre and buy more fertiliser. Price signals drive production decisions.

What SHIFTS the Supply Curve?

💷 Production Costs

Rising wages, energy, or raw material costs reduce profitability → supply falls (shifts left).

🔬 Technology

Better machines or processes cut costs → more supply at every price (shifts right).

🏛️ Govt Policies

Taxes raise costs (shift left); subsidies cut costs (shift right).

🌦️ External Shocks

Droughts, pandemics, wars can suddenly reduce supply capacity.

← Back to Year 7 📊 Economics Tools →

📊 Interactive Economic Diagram

Supply Shift

💡 How to read economic diagrams: Always label axes (Price on Y-axis, Quantity on X-axis for most diagrams). Shifts represent changes in non-price factors; movements along a curve represent price changes. Equilibrium is where curves intersect.

📊 PES Calculator

Original Qs New Qs Original Price (£) New Price (£)

Enter values above and click Calculate.

💡 Exam Tip: Show all working in economics calculations. Use the correct formula, substitute values clearly, state units, and interpret your result in economic terms.