Supply shows the different quantities producers are willing and able to make at various prices. The law of supply says price and quantity supplied move in the same direction, which is why the supply curve slopes upward.
Why This Matters for the AP Macroeconomics Exam
Supply is one half of the basic market model that you will use again and again in AP Macroeconomics. Getting comfortable with it now sets you up for market equilibrium, the foreign exchange market, the loanable funds market, and the money market later in the course. The biggest exam skill here is telling the difference between a movement along the curve and a shift of the whole curve, and being able to draw and label that change correctly. Even when a question does not ask for a graph, sketching one often helps you predict and explain the outcome.
Key Takeaways
- The law of supply states there is a positive relationship between price and quantity supplied, so the supply curve slopes upward.
- A change in the good's own price causes a movement along the supply curve (a change in quantity supplied), not a shift.
- A change in a determinant of supply shifts the entire curve and changes quantity supplied at every price.
- Input prices are the key determinant: lower input prices increase supply (shift right), higher input prices decrease supply (shift left).
- "Supply" is the whole curve; "quantity supplied" is a single point on it.
- These relationships assume ceteris paribus, meaning all other factors are held constant.
Quantity Supplied vs. Supply
Quantity supplied is the amount of a good or service that producers make at a particular price. It is a single point on the supply curve.
Supply is the entire curve, including every price and quantity combination that makes it up.
In the graph above, each labeled point (A, B, or C) is a quantity supplied, while the full upward-sloping line is supply.
Law of Supply
The law of supply states there is a positive, or direct, relationship between the price of a good or service and the quantity supplied. As the price rises, producers are willing and able to supply more. As the price falls, producers are willing and able to supply less. This is why the supply curve slopes upward.
In short:
- When the price of the good increases, the quantity supplied increases.
- When the price of the good decreases, the quantity supplied decreases.
Using the graph above, when the price rises from P1 to P2, the quantity supplied increases from 2 units to 8 units. When the price drops from P3 to P2, the quantity supplied decreases from 12 units to 8 units.
The only thing that changes quantity supplied is the price of the good or service. This movement assumes ceteris paribus, that all other factors stay the same.
Determinants of Supply
A determinant of supply is any factor other than the good's own price that shifts the entire market supply curve. The key example is input prices, such as wages and raw materials.
- If input prices fall, production becomes less costly and supply increases (the curve shifts right).
- If input prices rise, production becomes more costly and supply decreases (the curve shifts left).
When supply increases, the curve shifts right, so there is a larger quantity supplied at every price. When supply decreases, the curve shifts left, so there is a smaller quantity supplied at every price.
A change in quantity supplied and a shift in supply are two different things. A shift happens because of a determinant of supply, while a change in quantity supplied happens only because of a change in the good's own price.
How to Use This on the AP Macroeconomics Exam
MCQ
- Read the cause first. If the good's own price changed, you are looking for a movement along the curve (a change in quantity supplied). If something else changed, like input prices, you are looking for a shift.
- Watch for wording traps. "Quantity supplied increased" points to a price-driven movement; "supply increased" points to a rightward shift.
Free Response
- Label everything. Title the graph, label both axes, label the supply curve, and clearly show the new curve or new point after a change.
- When a determinant changes, draw the shift in the correct direction and state that quantity supplied changes at every price.
- When the good's own price changes, show movement along the existing curve instead of drawing a new one.
Common Trap
- Do not redraw the whole curve when only the good's own price changed. That is a movement, not a shift.
Common Misconceptions
- "Supply" and "quantity supplied" are not the same. Supply is the entire curve; quantity supplied is one point at one price.
- A change in the good's own price does not shift the supply curve. It moves you along the existing curve.
- A rightward shift does not mean producers will sell less. It means they supply more at every price.
- Higher prices for the good itself do not cause a shift. Only determinants other than the good's own price, like input prices, shift the curve.
- "Increase in supply" always means a rightward shift, even though the curve visually moves down and to the right.
Related AP Macroeconomics Guides
Vocabulary
The following words are mentioned explicitly in the College Board Course and Exam Description for this topic.Term | Definition |
|---|---|
determinants of supply | Factors that influence the quantity of goods and services producers are willing and able to supply at various price levels. |
good | A tangible product that can be produced, bought, and sold in a market. |
input prices | The costs of resources and factors of production used to produce goods and services. |
law of supply | An economic principle stating that there is a positive relationship between the price of a good and the quantity suppliers are willing to produce and sell. |
market supply curve | A graph showing the relationship between the price of a good and the total quantity supplied by all producers in the market at each price level. |
positive relationship | A direct relationship between two variables where an increase in one corresponds to an increase in the other. |
price | The amount of money required to purchase a good or service. |
quantity supplied | The amount of a good or service that producers are willing and able to offer for sale at a given price. |
service | An intangible product or activity provided by a producer to satisfy consumer wants. |
shift | A change in the entire supply curve caused by factors other than price, resulting in a different quantity supplied at each price level. |
supply curve | A graph showing the relationship between the price of a good and the quantity supplied, typically upward-sloping to reflect the law of supply. |
Frequently Asked Questions
What is the law of supply in AP Macro?
The law of supply says price and quantity supplied have a positive relationship. When the price of a good rises, producers are willing and able to supply more; when price falls, they supply less.
Why does the supply curve slope upward?
The supply curve slopes upward because higher prices give producers more incentive to produce and sell the good. That positive relationship between price and quantity supplied is the law of supply.
What is the difference between supply and quantity supplied?
Supply is the entire curve showing all price and quantity combinations. Quantity supplied is one point on that curve at one specific price.
What causes movement along the supply curve?
Only a change in the good’s own price causes movement along the supply curve. That movement is called a change in quantity supplied, not a change in supply.
What causes the supply curve to shift?
A determinant of supply shifts the whole curve. Input prices are the key AP Macro example: lower input prices increase supply and shift the curve right, while higher input prices decrease supply and shift it left.
How is AP Macro 1.5 tested?
AP Macro 1.5 often asks you to define the law of supply, identify movement versus shift, and draw or interpret an upward-sloping supply curve with correct labels.