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On your whiteboards…

1) How many substitutes can you think of for the following products? Speedos Cinema tickets Pencils

2) How many compliments can you think of for the following products?

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Macbook pros Haircut

The supply function

The Supply Curve
Topic Objectives:
The meaning of supply
Key Concepts
Supply The Law of supply

The law of supply
The supply curve movements along the curve

Extension of supply
Contraction of supply

The meaning of supply

Supply is the quantity of good or service that a producer is willing and able to supply onto the market at a given price in a given time period.

The law of supply
The basic law of supply is that as the market price of a product rises, so producers expand their supply onto the market.
Ceteris Paribus, the higher the price of a product the more sellers will supply. Or in other words, there is a positive relationship between the quantity supplied and price.

The supply curve
A supply curve shows the relationship between price and the quantity a firm is willing and able to supply.

Movements along the supply curve
A change in the price of the good itself does not shift supply - it causes a movement along the supply curve.
There has been a change in the quantity supplied.

How many words can you make from the following letters? The words must be at least three letters in length


Questions-Chapter 4
In the igcse textbookcomplete the ‘getting started’ questions Complete question 1

Shift in Supply
You should Understand why supply curves shift Explain shifts in supply curves using a diagrams
Key Concepts
Indirect tax Government subsidies

Shifts in the supply curve
• A shift of the curve or a change in supply will occur if a variable other than price changes.

5 reasons why supply may shift (Non-price factors)
1. A change in technology 2. A change in costs 3. A change in indirect taxes and subsidies 4. A change in the price of other goods 5. Weather (agricultural markets)

Indirect Taxes
A government tax on a good or service Example being Value Added Tax

Government Subsidies
Government financial assistance to firms

The change in price of other goods
The prices of substitute producer goods. If the price of beef falls farmers who can switch to pigs or sheep will do so and the supply of pork and lamb will rise. Similarly, a fisherman supplying crabs is likely to supply less crabs if the price of lobsters rises and efforts can be switched to

On your whiteboards…

See if you can think of five factors affecting the market supply of milk

On your whiteboards

See if you can think of five factors affecting the market supply of milk 1. the price of raw milk from farmers 2. productivity in milk industry 3. the number of suppliers in the industry

4. costs of packaging and transportation
5. government subsidies to milk producers

On your whiteboards…
Draw what will happen in the following scenarios; 1) A new fertilizer has been developed that increases yields 2) The price of sugar increases 3) Starbucks cafes begin to expand their operations in China and India. 4) The company ‘Fair trade’ increase their funding to Kenyan farmers. 5) The US reduces their import taxes for products from developing countries.

Market price
To understand:
How a market price is determined The meaning of equilibrium To understand how to calculate total revenue To understand why there may be excess supply and demand and how the market clears.

Key terms for your glossaries:

Market clearing price Excess demand Excess supply Total revenue

Equilibrium price
This is the price where SUPPLY IS EQUAL TO DEMAND. At the equilibrium price the producers sell all of their products and everyone who is willing and able to purchase the good can. Firms carry out market research to ensure that they set the correct price to reach equilibrium. They will not always set their price perfectly, but the price will move towards equilibrium over time. Q. How do firms gather information about the prices consumers are willing to pay?

Equilibrium price

Equilibrium price

Total revenue
Total revenue can be calculated by using the formula: PRICE X QUANTITY SOLD. You can show TOTAL REVENUE BY CREATING A REVENUE BOX Total revenue is not the same as Profits. Profits are calculated by using the following formula:


Total revenue

Excess supply and demand
Excess supply: Occurs when retailers set a price which is above the equilibrium level. The will end up with many unsold units of their products. They will lower the price to sell the remaining units and the market will move back to equilibrium Excess demand: This occurs when retailers set a price which is below the equilibrium level. Consumers will be queuing out of their shop doors as many people who are willing able to buy at that price will not have the opportunity. Retailers will realise over time that they can increase the price and still sell all of their products. The price will rise up to equilibrium level over time

Excess supply

Excess demand

Finding the market price
Possible price 50 40 30 20 Quantity demanded 100,000 150,000 200,000 260,000 Quantity supplied 420,000 300,000 200,000 120,000




A) State and mark the equilibrium price on your graph B) What is the quantity of chocolate bars traded at this market price?

C) At which prices is there excess demand?
D) At which prices is there excess supply? E) If there is excess demand what will happen? F) If there is excess supply what will happen?