Supply Curve

The supply curve is a graph that shows the relationship between the price of a good and the quantity that suppliers are willing and able to offer. It displays the quantity supplied in the market at each possible price, and it is plotted under the assumption that all other factors that could affect the quantity supplied, except for the price, remain constant.

Supply Curve Graph

As shown in the graph, the relationship between price and the quantity supplied is positive. This means that a higher price results in a higher quantity supplied. When the price increases, more producers are willing and able to enter the market. The curve shows the quantity supplied at each possible price, and note that the intersection with the price axis is at 20, at point A. This indicates that a minimum price of 20 is necessary for there to be supply in the market. Below this price, no producer finds it profitable to produce the good because production costs exceed potential earnings. As the price rises above 20, the most efficient producers who optimize costs enter the market first. As the price continues to increase, more producers find it profitable to enter the market, thus increasing the quantity supplied.

Slope of the Supply Curve

The positive slope of the supply curve represents the positive relationship between price and quantity supplied. That is, at a higher price, producers are willing to produce more, provided that all other factors affecting the quantity supplied, apart from the price, remain constant. Therefore, a higher price means a greater quantity supplied, and a lower price means a lesser quantity supplied. This is illustrated in the graph: when the price is 40, we are at point B on the curve, and the quantity supplied is 200. If the price rises to 60, we move to point C, and the quantity supplied becomes 400.

Inverted Axes

Note that the dependent variable is on the x-axis, meaning quantities, and the independent variable is on the y-axis, meaning price. Typically, it is graphed the opposite way, with the independent variable on the x-axis and the dependent variable on the y-axis. However, in economics, by convention, the axes are inverted when graphing, even though it is the quantity supplied that depends on the price and not the other way around. The price does not depend on the quantities.

In conclusion, the supply curve answers the question of what happens to the quantity supplied when the price changes, keeping all other factors constant and assuming they do not change, such as changes in production costs and government regulations.