The Supply Curve
The law of supply says that sellers offer more of a good when its price is higher and less when its price is lower, all else equal. The direction is intuitive: if the price of a latte jumps from 6, pop-up coffee stands that couldn't break even at $4 suddenly can, and existing cafes run their machines longer to capture the margin.
The same logic applies in any secondhand market. When used-textbook prices spike at the start of a semester, students who might otherwise keep their copies dig them out and list them for sale. A higher price draws out sellers who would not have bothered at a lower one.
The upward slope reflects costs. Every additional unit produced is slightly more expensive to make than the last — this is the idea of marginal cost (the cost of producing one more unit). A higher market price is needed to cover the marginal cost of those extra units and to make it worthwhile for less-efficient producers to enter the market at all.
A supply schedule lists the quantity sellers are willing to offer at each price. The table below uses the default supply equation for this page, , to read off six price-quantity pairs.
| Price ($) | Quantity supplied |
|---|---|
| 5 | 0 |
| 10 | 20 |
| 15 | 40 |
| 20 | 60 |
| 25 | 80 |
| 30 | 100 |
Plotting price on the vertical axis and quantity on the horizontal gives the supply curve below. The two endpoints in the table — (0, 30) — anchor the straight line.
The supply curve: Q_s = −20 + 4P
The supply equation writes quantity supplied as a linear function of price. In the general form, is the quantity supplied when the price is zero and measures how strongly sellers respond to a price change — economists call the slope coefficient of the supply curve.
With the page defaults and , the equation says sellers supply nothing until price reaches the break-even level -c/d = 20/4 = \5$. Above that threshold, every extra dollar of price brings 4 more units to market. The negative intercept is not a problem — it simply means the market only activates at a positive price.
The supply curve above holds all non-price factors fixed. When one of those factors changes, the entire curve shifts — sellers offer a different quantity at every price. The five main shifters are listed below.
- Input costs
- Wages, raw materials, energy, and other production costs. Higher input costs raise marginal cost and shift supply left; lower input costs shift it right.
- Technology
- Better production methods reduce the cost of each unit, shifting supply rightward — sellers can profitably offer more at any given price.
- Seller expectations
- If sellers expect prices to rise in the future, they may withhold supply now (shift left today) to sell at the higher price later.
- Number of sellers
- More firms in the market means more total supply at every price (rightward shift); exit of firms shifts supply left.
- Weather (agricultural goods)
- A good harvest shifts supply right; drought or disease reduces supply and shifts the curve left. Weather is the main short-run supply shifter for crops.
The chart below illustrates a rightward shift caused by a fall in input costs — equivalent to setting in the supply equation, so the curve becomes (minimum supply price drops to zero). Notice that the slope of the curve is unchanged; only its position moves.