Supply Curve is a graphical representation of the direct relationship between the price of a product or service, and its quantity that producers are willing and able to supply at a given price within a specific time period provided other things such as number of suppliers, resource prices, technology etc. remain constant. It is important to note that producers must not only be willing to supply a certain quantity at a given price but they must have the ability, in the form of production facility or other means, to supply that quantity.
Supply curve of a product or service being supplied can be drawn by mathematically fitting a curve over a scatter-graph of a series of pairs of prices and the corresponding quantities supplied from the supply schedule of the product or service. The convention is to measure quantity supplied along the horizontal axis and the price along the vertical axis. The supply curve is upward sloped showing the direct relationship between the price and the quantity supplied.
Supply curve is used to understand a number of economic concepts including price ceilings, price floors, consumer and producer surplus, market equilibrium and market structures.
The supply schedule of a hypothetical product is given below. It shows the quantities supplied per day at various prices.
We can already observe the direct relationship between price and quantity supplied. By plotting the above points in a Cartesian coordinate system and fitting a trend line to the points, we get a clear depiction of the relationship of price to quantity supplied, as shown below:
The supply curve is always restricted to the first quadrant in a Cartesian coordinate system because both price and quantity supply cannot be negative numbers. The supply curve typically intercepts the vertical axis and some point above zero because suppliers are unlikely to produce and supply at any price below the production cost, because that would lead them to loss.
Since the supply curve is continuous line unlike the supply schedule, it gives us and idea of quantities supplied at prices between the whole dollar amounts.
by Irfanullah Jan, ACCA and last modified on