The Supply Curve showcases the positive relationship referred to by the law of supply (2.2.1) in a graph. Hence, higher prices lead to more quantity supplied, ceteris paribus.
The figure above showcases a supply curve ($S$) that is upward-sloping due to the law of supply:
- For a price of $2$, the firm is willing and able to supply an output of $20$ units
- As the price rises to $3,4$ and $5$, the quantity supplied by the firm also rises to $30, 40$ and $50$ respectively.
Drawing the supply curve
Three important points to make sure of when drawing the supply diagram.
- Make sure to label the axis (holds for any diagram). In this case, prices $P$ will be on the $y$-axis (add the currency being used too) and quantity $Q$ will be on the $x$-axis
- The graph should show an upward-sloping curve (positive relationship) such that a rise in price leads to a rise in the quantity supplied
- If you're showcasing a specific point on the curve, make sure to label the price and quantity associated with it clearly. For example label the price $P_1$ and quantity as $Q_{s1}$
- It is important to note that the supply curve doesn't indicate anything about the actual quantity the firm will supply and the price it will receive.
- The curve indicates what the firm is ready to and can potentially supply in the market.
The vertical supply curve
In some scenarios, the supply curve may be vertical. A vertical supply curve indicates that:
Even when prices change, the quantity supplied stays the same as seen in the figure below.
The vertical supply curve occurs when there is:
- Limited time and therefore it is not possible to produce more of a certain good or service within that period. For example seats at a cinema cannot easily be added quickly, their supply is fixed (the number of seats in the cinema).
- No possibility of new production of that good or service ever. For example, original paintings and antiques can only be replicated but not reproduced.
