Flip the counter round and look at the seller. Firms want profit, so a higher price makes producing more worth the effort. That is the law of supply in one sentence — but the reason it works is about costs, and that is what the marks are for.
📚 What you need to know
Supply is the quantity of a good producers are willing and able to sell at a given price in a given time period.
The law of supply: price and quantity supplied have a positive (direct) relationship, ceteris paribus.
So the supply curve slopes upwards from left to right.
Two reasons why: the law of diminishing marginal returns and increasing marginal costs.
Market supply is the sum of all firms’ individual supply at each price.
A price change causes a movement along the curve: an extension (price rises) or a contraction (price falls).
The law of supply
The law of supply
As price rises, quantity supplied rises.
As price falls, quantity supplied falls. Ceteris paribus.
The everyday version is obvious: nobody works overtime for nothing. If the price of tomatoes doubles, growers plant more, hire extra pickers and squeeze more crop out of the same land, because each extra crate is now worth the bother.
But “firms are greedy” is not an answer. The proper explanation is about rising costs. Producing more is not free — and it gets more expensive per unit the further you push.
Why the curve slopes up
1. Diminishing marginal returns
Some inputs are fixed in the short run: the factory, the land, the machines. You can add more of the variable input — usually labour — but the fixed input does not grow with it.
A bakery with one oven hires a second baker and output jumps. A third helps too. By the fifth, they are queuing for oven space and tripping over each other. Each extra worker still adds something, but less than the one before. That is diminishing marginal returns.
2. Increasing marginal costs
Now follow the money. If each extra worker produces less, then each extra loaf costs more in wages. Add overtime rates, rushed deliveries and a second-hand oven bought at short notice and the cost of producing one more unit keeps climbing.
So a firm will only make that extra unit if the price covers the extra cost. Higher prices unlock higher output. Draw that relationship and you get an upward-sloping line.
Turn these bars on their side and you have the supply curve. Rising marginal cost is the upward slope — they are the same fact drawn two ways.
If a question asks why supply slopes upwards, do not write “because firms want more profit”. Write “because marginal costs rise as output expands, so firms need a higher price to cover the cost of each extra unit”. Same idea, but the second one is worth the marks.
Movements along the supply curve
Same curve throughout. The firm has not become more efficient or faced new costs — it is simply responding to a different price.
The language matters. Price rises → an extension in quantity supplied. Price falls → a contraction in quantity supplied. The word “supply” on its own is reserved for shifts of the whole curve.
From individual firms to market supply
Market supply is every firm’s supply added together at each price. Again you add across horizontally: fix the price, sum the quantities.
The market curve reaches further right than any single firm’s, because it is the sum of all of them at every price.
Worked examples
WORKED EXAMPLE 1
Four fish farms supply salmon. At $9/kg they supply 400, 250, 180 and 170 kg per day. At $6/kg they supply 250, 160, 90 and 100 kg. Find market supply at each price and comment. [3]
Step 1: add across at $9400 + 250 + 180 + 170 = 1 000 kgStep 2: add across at $6250 + 160 + 90 + 100 = 600 kgStep 3: comment
A lower price brings a lower quantity supplied, which is the positive relationship in the law of supply.
1 000 kg at $9 and 600 kg at $6 per dayAlways give the units and the time period. “600” alone is not a supply figure.
WORKED EXAMPLE 2
Explain, using the idea of increasing marginal costs, why a coffee roaster supplies more beans when the market price rises from $8/kg to $11/kg. [4]
Step 1: state the idea
As output expands, the cost of producing each extra unit rises, because fixed capacity is stretched and overtime, rushed deliveries and less productive inputs are needed.
Step 2: link cost to the decision
A firm only produces an extra kilo if the price at least covers that extra cost.
Step 3: apply the numbers
Batches costing between $8 and $11 a kilo were not worth roasting at $8, but are worth roasting at $11.
Step 4: name the movement
This is an extension in quantity supplied, a movement up the same curve.
Higher price covers higher marginal cost, so output extendsDo not shift the curve here. Costs have not changed — only the price has.
WORKED EXAMPLE 3
A farm has 20 hectares of land and hires more workers. Output goes 8, 15, 20, 23, 24 tonnes as workers 1 to 5 are added. Identify the pattern and name it. [3]
Step 1: work out the extra output from each worker8, 7, 5, 3, 1 tonnesStep 2: describe the pattern
Total output still rises, but each extra worker adds less than the one before.
Step 3: name it and give the cause
The law of diminishing marginal returns — a variable factor (labour) is being added to a fixed factor (20 hectares of land).
Diminishing marginal returns from the third worker onwardsDo not say output falls. Total output rises; the extra output falls.
💡 Exam tip
Explain the slope through costs, not through greed. Marginal cost rises, so the price must rise.
Label the curve S and both axes fully, with units and a time period.
Use “quantity supplied” for movements and “supply” only for shifts.
Extension is upwards on a supply curve and downwards on a demand curve. Same word, opposite direction — check which curve you are on.
Diminishing returns is a short-run idea. In the long run all factors can change, so it does not apply.
Say “ceteris paribus” when you state the law — it is often a mark.
⚠ Common mix-up
Saying “supply rose” when the price rose. Quantity supplied rose; supply is the whole curve.
Confusing diminishing returns with falling output. Total output still rises; the addition from each new worker shrinks.
Applying diminishing returns in the long run. It needs at least one fixed factor.
Drawing the supply curve sloping down. Check the direction before you draw anything else.
Forgetting “able” in the definition. A firm that wants to sell but has no capacity is not supplying.
Adding firms’ supply vertically. Fix the price and add across.
Up next: What Shifts a Supply Curve — seven causes, all of which come back to the same thing: the cost of producing.
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