TOPIC: The Supply Curve


The supply curve unlike the demand curve is upward sloping. The is a result of the law of supply, which states that when the price of the good is high so is the quantity supplied, and when the price of the good is low, the amount being placed on the market will also fall. Suppliers will therefore put more goods on the market at a higher price.

In the graph, it can be seen that as the producer can increase the price of cookies produced, more cookies are supplied on the market. At each price and corresponding quantity, when the points are joined, the supply curve for the good is formed.


Movement along the Supply Curve:

When the price of a good increases, it is an incentive for suppliers to put more goods on the market, because profits will be higher. Therefore, supply is greater at a higher price. There is a positive relationship between price and the quantity supplied, as when price increases, the quantity supplied increases and when price decrease the quantity supplied decreases.

The price of the good in this graph has increased from $3,000 to $4,000 and has caused a movement up the supply curve. The quantity supplied of that good also increases, from 5 to 6. Since quantity supplied has increased, there is an extension in supply. When there is a movement down the curve, the price falls from $3,00 to $2,000, and there is a contraction in demand.


Shifts of the supply curve:

A supply curve shifts ONLY as a result of changes in a non-price determinant, meaning any factor that is not price.

The information at the bottom of the graph explains the factors that cause the supply curve to shift to the left, indicating a decrease in supply of the good) and a shift to the right, indicating an increase in supply).