Supply (Edexcel A Level Business)

• Supply is the number of goods/services businesses are willing to sell at a given price in a specific time period
  
  
• There is a direct relationship between supply and price 
  • As the price increases, the quantity supplied increases
  • As the price decreases, the quantity supplied decreases
  • At higher prices, businesses are incentivised to supply more of the product
  • Hence the supply curve slopes upwards from left to right
     

A supply curve showing how a change in price will lead to a change in the quantity supplied (QS) 
 

Diagram Analysis

• An increase in price from £7 to £9 leads to a move up the supply curve from point A to B
  • Due to the increase in price, the quantity supplied (QS) has increased from 10 to 14 units
    
    
• A decrease in price from £10 to £7 leads to a movement down the supply curve from point A to point C
  • Due to the decrease in price, the quantity supplied (QS) has decreased from 10 to 7 units

• A change in price causes a movement along the supply curve
  
  
• A change in any other factor affecting supply will shift the entire supply curve to the left or right
  • These are called non-price factors affecting the supply

 
Changes to any of the non-price factors affecting supply will shift the entire supply curve to the left or right
 

• E.g. If a firm's cost of production increases due to the increase in the price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products
• This causes a shift in supply from S to S₁. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units
  
  

A diagram showing how a change in any non-price factor of supply will shift the entire supply curve left or right
  

Diagram Analysis

• The initial supply curve is seen at S
  • At a price of £7, 10 units are supplied
     
• If the price remains constant at £7 but supply decreases due to one of the non-price factors of supply (e.g. worker's wages increase), the entire supply curve shifts to the left from S to S₁
  • Supply has decreased from 10 to 2 units
    
    
• If the price remains constant at £7 but supply increases due to one of the non-price factors of supply (e.g. costs of production fall), the entire supply curve shifts to the right from S to S₂
  • Supply has increased from 10 to 20 units

Non-price Factors Affecting Supply

Non-price Factor	Explanations	Examples	Affect on Supply
Change in the costs of production	An increase in costs of production makes it more expensive to produce each unit and a business will be able to produce less at a given price	A clothing manufacturer: an increase in energy and labour costs will increase the costs of making each item	Shifts the supply curve for clothing to the left
New technology	Advances in technology will lead to lower costs of production and businesses will be able to produce more at a given price	Robots have replaced many workers in car factories and this increases productivity	Shifts the supply curve for cars to the right
Indirect taxes	The government increases indirect taxes on businesses which causes an increase in the costs of production as firms have to pay extra costs	VAT - the rate of VAT increased from 17.5% to 20% in the UK in 2011	Shifts the supply curve for all businesses to the left
Government subsidies	A subsidy given by the government to businesses will reduce the costs of production	Electric vehicles - a subsidy to the largest battery producer in the UK lower the costs of production for electric cars	Shifts the supply curve for electric vehicles to the right
External shocks	An unexpected event can change the supply	The outbreak of Covid-19 caused many hotels, bars, and restaurants to close down	Shifts the supply curve for hotels, bars, and restaurants to the left