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Supply
The Producer's Perspective

Explore how producers decide what to sell, the law of supply, and the forces that shift the supply curve in competitive markets.

AP Microeconomics

What Is Supply?

Supply is the total quantity of a good or service that producers are willing and able to offer for sale at each possible price during a given time period. It reflects the producer's side of the market.

Quantity Supplied
The specific amount offered at one particular price: a single point on the supply curve.
Supply
The entire relationship between price and quantity supplied: the whole curve or schedule.

The Supply Schedule

A supply schedule is a table showing the quantity of a good that producers are willing to supply at various prices. As price rises, quantity supplied rises.

Price (\( P \)) Quantity Supplied (\( Q_s \))
\( \$1 \)10 units
\( \$2 \)20 units
\( \$3 \)35 units
\( \$4 \)50 units
\( \$5 \)70 units

The Supply Curve

Quantity (Q) Price (P) $1 $2 $3 $4 $5 10 20 35 50 70 S

The Law of Supply

1
Higher prices mean higher profits. When a product's price rises, firms can earn more revenue per unit, making production more attractive.
2
Increasing marginal cost. To produce more, firms use less efficient resources, driving up per-unit cost. Higher prices compensate for that rising cost.
3
New producers enter. At higher prices, production becomes profitable for firms that previously couldn't cover their costs.

The Supply Function

A linear supply function expresses quantity supplied as a function of price:

We can also express the inverse supply function by solving for price:

Movement Along vs Shift of Supply

Quantity (Q) Price (P)
\( S_0 \)
 Movement along
\( S_1 \)
 Shift
Movement Along
Caused by a change in the good's own price. You slide along the existing curve.
Shift of the Curve
Caused by a change in a non-price determinant. The entire curve moves left or right.

Determinants of Supply: ROTTEN

The mnemonic ROTTEN captures the six major non-price determinants that shift the supply curve.

R
Resources (input prices): cheaper inputs shift supply right; costlier inputs shift it left.
O
Other goods' prices: if a substitute-in-production becomes more profitable, supply of the original good falls.
T
Technology: better technology lowers cost and shifts supply right.
T
Taxes and subsidies: taxes shift supply left (higher cost); subsidies shift it right.
E
Expectations: if firms expect higher future prices, they may reduce current supply to sell later.
N
Number of sellers: more sellers in the market increase total market supply.

Supply Shifts in Action

Quantity (Q) Price (P)
\( S_2 \)
\( S_0 \)
\( S_1 \)
 Decrease Increase
Increase in Supply
Curve shifts right: more is supplied at every price. Caused by lower input costs, better tech, subsidies, more sellers.
Decrease in Supply
Curve shifts left: less is supplied at every price. Caused by higher input costs, new taxes, fewer sellers.

How to Analyze a Supply Question

1
Identify the change. Did the good's own price change, or did a non-price factor change?
2
Movement vs shift. Own-price change = movement along. Non-price determinant change = shift of the curve.
3
Direction of shift. Does the change increase (rightward) or decrease (leftward) supply? Use ROTTEN to guide you.
4
New equilibrium. Combine with the demand curve to find the new equilibrium price and quantity.
5
State the result. Clearly describe what happened to \( P \) and \( Q \) and why.

Example 1: Calculating \( Q_s \)

Suppose the supply function for lemonade is: $$ Q_s = -10 + 15P $$ Find the quantity supplied when \( P = \$4 \).

1
Substitute: \( Q_s = -10 + 15(4) \)
2
Calculate: \( Q_s = -10 + 60 = 50 \)
3
Interpret: At a price of \( \$4 \), producers are willing to supply 50 cups of lemonade.

Example 2: Identifying a Supply Shift

A new regulation requires coffee farms to use organic fertilizer, which costs 30% more than conventional fertilizer. How does this affect the supply of coffee?

1
Identify: Input prices (resources) have increased: this is the "R" in ROTTEN.
2
Direction: Higher input costs make production more expensive, so supply decreases.
3
Graph it: The supply curve shifts leftward from \( S_0 \) to \( S_2 \).
4
Result: At every price, less coffee is supplied. Combined with demand, equilibrium \( P \uparrow \) and \( Q \downarrow \).

Example 3: Market Supply from Individual Firms

Firm A has \( Q_A = 5 + 2P \) and Firm B has \( Q_B = 10 + 3P \). Find market supply.

1
Add horizontally: Market supply = \( Q_A + Q_B \)
2
Calculate: \( Q_s = (5 + 2P) + (10 + 3P) = 15 + 5P \)
3
Verify at \( P = \$3 \): \( Q_s = 15 + 5(3) = 30 \).
Check: \( Q_A = 11 \), \( Q_B = 19 \), and \( 11 + 19 = 30 \). ✓

Common Mistakes

✕ Confusing Movement and Shift
A price change moves you along the curve. Only non-price determinants shift the curve. Saying "price increased so supply increased" is wrong: quantity supplied increased.
✕ Mixing Up Supply and Demand Shifters
Consumer income shifts demand, not supply. Input costs shift supply, not demand. Match the factor to the correct curve.
✕ Shifting the Wrong Direction
An increase in supply shifts the curve rightward (more quantity at every price). Students sometimes draw the new curve higher (upward), which actually represents a decrease in supply.

Supply vs Demand: Key Differences

Supply Demand
Law \( P \uparrow \Rightarrow Q_s \uparrow \) \( P \uparrow \Rightarrow Q_d \downarrow \)
Slope direction Upward (positive) Downward (negative)
Perspective Producers / sellers Consumers / buyers
Key shifters Input costs, technology, taxes Income, tastes, substitutes
Increase = shift Rightward Rightward
Mnemonic ROTTEN TRIBE

Question 1 of 5

If the price of wheat rises from \( \$5 \) to \( \$8 \) per bushel, and farmers increase their production, this is best described as:

Question 2 of 5

A technological improvement in automobile manufacturing would cause:

Question 3 of 5

Given the supply function \( Q_s = -20 + 10P \), what is the minimum price at which producers will supply a positive quantity?

Question 4 of 5

The government imposes a new per-unit tax on cigarette producers. What is the most likely effect?

Question 5 of 5

Firm X has \( Q_X = 4 + 3P \) and Firm Y has \( Q_Y = 6 + 2P \). What is the market quantity supplied at \( P = \$5 \)?