EconomicsCBSE Class 11 · The Theory of the Firm under Perfect Competition

Supply, Market Supply, Shifts and Price Elasticity of Supply

Updated 17 October 2026 · Fact-checked

A firm in perfect competition supplies along its marginal cost curve above minimum AVC; market supply is the sum of firms' supplies. Supply rises with price (law of supply). A change in price moves the firm along the curve; changes in input prices, technology, taxes or the number of firms shift it. Price elasticity of supply = (percentage change in quantity supplied) / (percentage change in price).

A change in the good's own price moves you along one supply curve; a change in any other factor, like input cost, shifts the whole curve.

Illustration drawn for QuestionBuddy.

Understand Supply and Price Elasticity of Supply

Supply. Quantity of a good a seller is willing and able to offer at a price in a period. Law of supply: other things equal, quantity supplied rises with price (direct relation); the supply curve slopes upward.

Firm's supply curve. Under perfect competition a profit-maximising firm produces where P = MC (rising), provided P ≥ AVC. So the firm's supply curve is its MC curve above the minimum point of AVC. With the cost table: at P = Rs 10 supply = 5, at P = 14 supply = 6, at P = 20 supply = 7, and at P = Rs 7 (below minimum AVC) supply = 0.

Market supply. Sum of the quantities supplied by all firms at each price. If 100 identical firms each supply 5 units at Rs 10, market supply = 500; at Rs 14: 100 × 6 = 600; at Rs 20: 700.

Determinants of supply (shift the curve):

Prices of inputs: a fall in input prices lowers cost, so supply increases at each price (rightward shift).
Technology: improvement raises supply.
Taxes and subsidies: tax lowers supply; subsidy raises.
Number of firms: more firms, more market supply.
Prices of related goods and expectations.

Movement along versus shift. A change in the good's own price moves the firm along the same curve (expansion/contraction of supply). A change in any other determinant shifts the curve (increase/decrease in supply). Example: input prices fall and each price now brings 20 more units: at P = 10, supply rises from 100 to 120.

Price elasticity of supply (Es). Responsiveness of quantity supplied to price: Es = (% change in quantity supplied) ÷ (% change in price) = (ΔQ/Q) ÷ (ΔP/P).

Example 1: price rises Rs 10 → Rs 12 (+20%); supply 100 → 130 (+30%); Es = 1.5, elastic (>1).
Example 2: price Rs 20 → Rs 25 (+25%); supply 80 → 84 (+5%); Es = 0.2, inelastic.
Unitary: price Rs 10 → Rs 15 (+50%), supply 40 → 60 (+50%): Es = 1.
Using Es: Es = 2 and price rises 10 per cent → supply rises 20 per cent.

Determinants of Es. Time period (more elastic in the long run), availability of inputs, spare capacity, perishability and technology of production. A straight-line supply curve through the origin has Es = 1.

Flow chart: P rises → firm moves along MC → supply expands; input cost falls → whole curve shifts right.

Supply and Price Elasticity of Supply: key facts

Firm supply: MC curve above minimum AVC; P = MC
Market supply: Sum of firms' supply at each price; Horizontal sum
Elasticity of supply: Es = (% change in Q supplied) / (% change in P); > 1 elastic
Shift vs movement: Own price: movement | other determinants: shift; Change in quantity vs supply

How to answer Supply and Price Elasticity of Supply questions

Questions give a schedule or percentages and ask for Es or the effect of a change.

1Decide if the change is own price (movement) or another determinant (shift).
2Compute percentage changes from initial values.
3Divide and compare the magnitude with 1.
4For market supply, multiply firm supply by the number of firms.
5Name the determinant of any shift.

Supply and Price Elasticity of Supply in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Cheaper fertiliser

Suppose fertiliser becomes cheaper and farmers grow more wheat at every price.

Is this a movement along or a shift, and in which direction?

Try it first, then show the solutionSolution

The price of an input changed, not the price of wheat.
Cost of growing falls, so more is supplied at each price.
The supply curve shifts to the right.

Answer: Rightward shift of supply.

Memory hook: Cheaper inputs shift supply out.

Tricks to remember Supply and Price Elasticity of Supply

Short memory aids. Say each one aloud once, then use it on a question the same day.

MC above AVC
Supply curve: MC above AVC.
Use it when: Firm supply
Own price moves, others shift
Own price: movement; other determinants: shift.
Use it when: Change
Es ratio
Percentage change in Q over percentage change in P.
Use it when: Elasticity

Supply and Price Elasticity of Supply: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Firm supply · 4 marks · Short answerBoard level

Using MC 10, 8, 6, 8, 10, 14, 20 for Q = 1 to 7 and minimum AVC = 8, find the firm's supply at P = 10, 14 and 20, and at P = 7.

Try it first, then show the solutionSolution

At P = 10 the firm supplies 5 units (MC(5) = 10) (1 mark).
At P = 14 it supplies 6 and at P = 20 it supplies 7 (1 mark).
At P = 7 price is below minimum AVC (1 mark).
So supply is zero (1 mark).

Answer: 5, 6, 7 and 0 units.

Example 2: Market supply · 2 marks · Very short answerBoard level

If 100 identical firms supply as above, find market supply at P = 10, 14 and 20.

Try it first, then show the solutionSolution

Firms are identical, so multiply by 100 (1 mark).
500, 600, 700 units (1 mark).

Answer: 500, 600, 700.

Example 3: Compute Es · 3 marks · Short answerHarder board level

Price rises from Rs 10 to Rs 12 and quantity supplied rises from 100 to 130. Find Es and its type.

Try it first, then show the solutionSolution

%ΔP = 2/10 x 100 = 20 (1 mark).
%ΔQ = 30/100 x 100 = 30 (1 mark).
Es = 30/20 = 1.5, elastic (1 mark).

Answer: Es = 1.5.

Example 4: Shift or movement · 3 marks · Short answerHarder board level

Classify: (a) supply rises as price of tea rises (b) supply rises because tea leaves are cheaper (c) a tax on tea is imposed.

Try it first, then show the solutionSolution

(a) Movement along (expansion of supply) (1 mark).
(b) Rightward shift (increase in supply) (1 mark).
(c) Leftward shift (decrease in supply) (1 mark).

Answer: Movement; right shift; left shift.

Example 5: Elasticity and time · 5 marks · Long answerHOTS / competency

Suppose supply of a fruit is almost fixed in the week after a price rise, but expands a lot over two years. Explain the difference in Es, and compute Es for a 10 per cent price rise raising supply 2 per cent in the week and 25 per cent in two years.

Try it first, then show the solutionSolution

Week: Es = 2/10 = 0.2 (inelastic) (1 mark).
Two years: Es = 25/10 = 2.5 (elastic) (1 mark).
In a short period growers cannot change trees or inputs (1 mark).
Over a long period new trees and technology are possible (1 mark).
So elasticity of supply rises with the time period (1 mark).

Answer: 0.2 versus 2.5.

Where students lose marks in Supply and Price Elasticity of Supply

The slips examiners see most often, and what to write instead.

Mistake: Own price shifts curve
Movement vs shift.
Wrong working
A price rise shifts the supply curve.
Right working
It moves along the curve.
Do this: Own price: movement.
Usually costs: 1 mark.
Mistake: Es with new value
Base error.
Wrong working
%ΔP uses the new price.
Right working
Use the initial values.
Do this: Initial.
Usually costs: 1 mark.
Mistake: Supply from AVC
Wrong curve.
Wrong working
Supply is AVC above MC.
Right working
Supply is MC above minimum AVC.
Do this: MC.
Usually costs: 1 mark.

Exam tips

State whether the change is a shift or movement.
Use initial values for percentages.
Link the supply curve to MC and AVC.
Mention time period for elasticity.

Practice questions on Supply and Price Elasticity of Supply

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The supply curve of a competitive firm is its
(a) AVC curve (b) ATC curve (c) MC curve above minimum AVC (d) AFC curve
Hint
P = MC.
Answer
(c).
Q2 · 1 mark · Assertion-reasonHarder board level
Assertion (A): A fall in the price of inputs shifts the supply curve to the right.
Reason (R): It lowers the cost of production at every output.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Hint
Cost fall.
Answer
(a).
Q3 · 2 marks · Very short answerBoard level
Es = 2 and the price rises by 10 per cent. Find the percentage change in quantity supplied and the new supply if it was 150 units.
Hint
Multiply.
Answer
Quantity rises 20 per cent; new supply = 150 x 1.2 = 180 units.
Q4 · 4 marks · Case-basedHarder board level
Read and answer.
Suppose price rises from Rs 20 to Rs 25 and supply from 80 to 84.
(a) Find Es. (2)
(b) Classify. (1)
(c) State one reason for such a response. (1)
Hint
Compute.
Answer
(a) %ΔP = 25; %ΔQ = 5; Es = 0.2. (b) Inelastic. (c) Producers cannot expand output quickly because of limited capacity or time.
Q5 · 3 marks · Short answerHOTS / competency
Suppose a government grants a subsidy per unit to producers. Explain the effect on the firm's MC, supply curve and market supply, and sketch the new curve relative to the old one.
Hint
Cost falls.
Answer
A subsidy lowers marginal cost at each output, so the MC (supply) curve shifts down/right. At each price producers offer more, so market supply increases.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Law of supply?Show answer
Supply rises with price.
2.Supply curve of a firm?Show answer
MC above minimum AVC.
3.Es formula?Show answer
%ΔQs / %ΔP.
4.Input price falls?Show answer
Supply shifts right.
5.Tax effect?Show answer
Supply falls.
6.Es > 1 means?Show answer
Elastic.

Supply and Price Elasticity of Supply: frequently asked questions

What is supply?

Quantity offered at a price.

What is market supply?

Sum of all firms' supplies.

What shifts supply?

Input prices, technology, taxes, number of firms.

What is Es?

Responsiveness of supply to price.

Why longer-run supply is more elastic?

More time to adjust inputs.