Question

State what causes movement along the supply curve and show it diagrammatically.

Answer 1

The term “change in quantity supplied” refers to a situation in which the quantity supplied remains constant but is affected by a change in the commodity’s own price. The term ‘expansion (extension) of supply’ refers to an increase in the quantity provided of a product when the price of the item itself rises but other factors affecting supply stay the same. Conversely, ‘contraction of supply’ (or fall in amount supplied) refers to a situation in which the quantity of a commodity supplied decreases as a result of a decline in its own price, with all other parameters staying constant.

Look at the fig. OP₁’s pricing; OQ₁ is the quantity provided. Now, if the price rises to OP₂, the quantity delivered rises to OQ₂. This upward movement from A₁ to A₂ (shown by the direction of the arrow) on the given supply curve SS signifies “expansion of supply” or “increase in the quantity supplied”. However, if the commodity’s price falls below OP₃, the quantity delivered falls to OQ₃. The downward movement from A₁ to A₃ (shown by the direction of the arrow) on the given supply curve is known as the “contraction of supply” or “fall in the quantity supplied”.