Supply Curve

Supply Curve

A supply curve shows the relationship between the price of a good or service and the quantity sellers are willing to provide. Plotted with price on the vertical axis and quantity on the horizontal axis, it is typically upward-sloping: higher prices generally encourage producers to supply more.

How it works

• The law of supply: as price increases, quantity supplied increases (price is the independent variable; quantity supplied is the dependent variable).
• “Quantity supplied” refers to the amount of a specific good or service available at a given price. “Supply” refers to the whole relationship between price and quantity (the curve itself).
• Movements along the curve occur when price changes. Shifts of the entire curve occur when non-price factors change (see below).

Shifts in the supply curve

The supply curve shifts right (increase in supply) or left (decrease in supply) when factors other than price change, for example:

• Production costs (labor, materials, energy)
• Technological improvements or setbacks
• Number of producers or market entry/exit
• Taxes, subsidies, and regulations
• Availability of inputs (e.g., weather for crops)
• Expected future prices (affecting current selling decisions)

A rightward shift means more quantity is supplied at every price; a leftward shift means less quantity is supplied at every price.

Example: soybean market

• If more farmers start growing soybeans (more land or new entrants), the supply curve shifts right and market quantity increases at the same price.
• If drought raises irrigation costs, the supply curve shifts left and quantity falls at the same price.
• If a new pest-resistant seed boosts yields, supply shifts right.
• If futures prices are higher than current prices, producers may withhold supply now, shifting current supply left.

Supply elasticity

Supply elasticity (price elasticity of supply) measures how responsive quantity supplied is to price changes:

Elasticity = (% change in quantity supplied) / (% change in price)

• Elastic supply: elasticity > 1 — quantity responds strongly to price (curve is flatter, closer to horizontal).
• Inelastic supply: elasticity < 1 — quantity responds weakly to price (curve is steeper, closer to vertical).
• Example: a 50% price increase that raises quantity supplied by 50% implies elasticity = 1. If quantity increases only 10%, elasticity = 0.2.

Market equilibrium and the demand curve

• The supply curve intersects the demand curve at the market equilibrium price and quantity.
• The demand curve is typically downward-sloping: higher prices reduce quantity demanded.
• Changes in supply or demand shift their respective curves and create new equilibria (different prices and quantities).

Factors affecting demand

Demand shifts when non-price factors change, such as:

• Consumer incomes and preferences
• Prices of substitutes and complements
• Expectations about future prices or income
• Population or market size

Key takeaways

• The supply curve maps price to quantity supplied and illustrates the law of supply.
• Movements along the curve are driven by price changes; shifts of the curve are driven by non-price factors.
• Elasticity describes how sensitive supply is to price changes—flatter curves mean more elasticity, steeper curves mean less.
• Equilibrium price and quantity are set where supply and demand intersect; shifts in either curve change the equilibrium.