The Supply Function and the Supply Curve
Resources and technology determine what it is possible to produce. Supply
reflects a decision about which technologically feasible items are best to produce. The supply function represents sellers' behavior.
Prices influence producers' supply decisions. The supply function can be depicted as a positively sloped supply curve.
- If all other factors are equal, a higher price will increase the producer's incentive to supply the good. Higher prices increase the producer's profit, which is the excess of sales revenue over the cost of production.
- As the price of a good falls, its supply falls as well.
Therefore, there is a direct
relationship between the price of a good and the amount of that good that will be supplied. The supply curve
. It tells the analyst the quantity that producers are willing to supply for each price when all other influences on producers' planned sales remain the same.
The graph below displays the quantity associated with price in a supply table.
To find the quantity supplied at a price of $1, extend a horizontal line from $1 to the supply curve and drop a vertical line down to the quantity axis. These lines will intersect at 0. This is the quantity that will be associated with a price of $1 on a supply table.
The law of supply results from the general tendency for the marginal cost
of producing a good or service to increase as the quantity produced increases.
A supply curve is also a minimum-supply-price curve
. The greater the quantity produced, the higher the price a firm must be offered to be willing to produce that quantity.