The supply curve shows the positive relationship the law of supply (2.2.1) describes: a higher price leads to a larger quantity supplied, ceteris paribus.
At a price of 2 the firm supplies a given quantity, and as the price rises to 3, 4, and 5, the quantity supplied rises at each step.
Each higher price makes more units profitable to produce.
The curve slopes upward because price and quantity supplied move in the same direction.
The curve does not tell you the actual quantity the firm will supply or the price it will receive; it shows what the firm is ready and able to supply at each price.
Tip
Label the axes: price ($P$) on the vertical axis with the currency, and quantity ($Q$) on the horizontal axis.
Draw an upward-sloping curve, so a rise in price raises the quantity supplied.
Label any specific point, for example price $P_1$ and quantity $Q_{s1}$.
The Vertical Supply Curve: When Quantity Cannot Change
In some cases the supply curve is vertical: the quantity supplied stays the same even when the price changes.
A vertical supply curve arises in two cases:
Limited time
It is not possible to produce more within the period, so supply is fixed.
Cinema seats cannot be added quickly, so supply is fixed at the number of seats in the building.
No possibility of new production
The good can never be reproduced.
Original paintings and antiques can be copied but never truly remade.
In either case the quantity is fixed, so supply does not respond to a change in price.
Theory of Knowledge
Goods with limited supply, like rare artwork or land, break the usual upward slope.
Ask how far these exceptions limit the law of supply as a general claim.
Marginal Cost and Supply: Why They Are the Same Curve (HL)
The marginal cost curve shows the cost of producing one more unit; the supply curve shows every quantity a firm is able and willing to produce at each price.
These line up, so a section of the marginal cost curve is the firm's supply curve, the exact part set out in 2.11.
A firm produces one more unit only if the price covers its marginal cost, so marginal cost sets the minimum price the firm will accept for that unit.
Because the firm supplies wherever price equals marginal cost, the marginal cost curve traces out the same points as the supply curve.
The supply curve is the section of the marginal cost curve where the firm would not gain by shutting down.
Active recall
Why does the supply curve slope upward?
What does a point on the supply curve tell you, and what does it not tell you?
Name the two conditions that produce a vertical supply curve.
Why is a section of the marginal cost curve the firm's supply curve?
