Allocation of Resources · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 18% of your exam marks.
Supply appears alongside demand on virtually every paper; cost changes, technology, and taxes/subsidies are the most tested supply shifters.
A change in the good's own price (and nothing else) produces a movement along the existing . The curve stays put; only the point on it moves.
Extension of . When the price rises (P↑), the quantity supplied rises, and the point moves up and to the right along the curve.
Contraction of supply. When the price falls (P↓), the quantity supplied falls, and the point moves down and to the left along the curve.
Note that the directions are the opposite of demand. With demand, extension is caused by a price fall; with supply, extension is caused by a price rise. The naming is consistent only in that "extension" always means a movement that produces a larger quantity and "contraction" always produces a smaller quantity.
Extension and contraction of supply
What comes up: an MCQ or short-answer question gives a supply schedule, states a price change, and asks whether supply extends or contracts and whether the curve moves or shifts.
Write: a rise in the good's own price causes an extension of supply — the point moves up and to the right along the existing curve and the curve itself stays in place. A fall in the own price causes a contraction — the point moves down and to the left. Use the vocabulary "change in quantity supplied" for this movement, not "change in supply."
Watch out: confusing a price change with a non-price change is the classic error. If the question mentions wages, technology, a subsidy, or any factor other than the price of this good, the answer is a shift of the whole curve — not a movement along it. A movement along the supply curve is triggered only by a change in the own price of the good.