Cambridge International as and a level Economics Ebook

The supply curve
Using the above information on supply, we can construct a 
supply curve
. Th
is can be done for an individual fi rm selling 
PCs or, by aggregating each company’s supply curves, to 
42
Cambridge International AS Level Economics

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get the industry or market supply curve for PCs. Assuming 
we have collected statistical data about companies’ selling 
intentions – represented by 
Table 2.2 
(a market 
supply 
schedule
) – we can plot this supply schedule to see how the 
quantity of PCs depends upon variations in price. 
Figure 2.2 
shows the supply curve (
S
0
) for the data in this table.
Th
e supply curve in 
Figure 2.2
 shows:
■ 
A positive or direct relationship between price and quantity 
supplied. This means that:
❏
when price goes up there is an 
increase
in 
quantity supplied
❏
when price goes down there is a 
decrease
in 
quantity 
supplied
.
■ 
Changes in price cause changes in the quantity supplied. 
This is represented by movements up and down the 
supply curve.
■ 
A causal relationship – price changes cause the change in 
quantity supplied.
■ 
A linear relationship – the supply curve has been drawn 
for simplicity as a straight line. There is no reason why the 
supply curve should not be represented in a non-linear way, 
e.g., in the form of an upward sloping curve.
■ 
A continuous relationship – look at the curve to find out 
how many PCs companies would plan to supply at a price 
of $1,150.
■ 
A time-based relationship – the time period again is weekly.
Note we are also assuming other things being equal – any 
other factor infl uencing supply is assumed to be unchanged.
TOP TIP
A change in the price of a product is shown by a 
movement along the supply curve. The assumption is 
that all other factors aff ecting supply are 
ceteris paribus.