Understanding Supply Curve: Definition of Supply Curve

A supply curve is a graphical representation of the relationship between the amount of a good or service in supply during a certain time period and the price of the good or service. The supply curve appears as a graph with the price on the vertical axis on the left side and the quantity of goods on the horizontal axis on the bottom. The information plotted on the supply curve comes from the supply schedule, which is a table listing quantity supplied at any given price. The supply curve typically shows an upward-sloping line or curve, demonstrating how, as price increases, supply increases as well. This concept is known as the law of supply. When a supply curve refers to an entire competitive market—not just an individual supplier—it is known as a market supply curve.

The upward-sloping supply curve relies on the idea that an increase in market price will positively affect supply, since suppliers will increase production when their product becomes more valuable. But this isn't always the case. The price elasticity of supply shows how some supply curves can look different due to factors such as the number of sellers or number of suppliers in an industry, whether or not a market is in perfect competition, and the costs of production.

1. 1. Perfectly inelastic supply: There is no change in the quantity of goods supplied when the price rises, so the supply curve shows a vertical line. This type of supply curve is common for products or services with limited quantities, such as original art or precious metals.
2. 2. Relatively inelastic supply: The price of a product rises at a faster rate than the increase in the supply of goods, so the upward slope of the supply curve rises sharply. This type of supply curve may apply to goods or services that take longer to manufacture or procure and therefore can only be produced in lower quantities, such as rare plants or sports cars.
3. 3. Unit elastic supply: The supply quantity rises at the same rate as the price rises, so the supply curve line proportionally rises upward to demonstrate price-quantity market equilibrium or an equilibrium price. This supply curve generally represents manufactured goods that have a consistent production process that have the time and excess demand to find an equilibrium quantity.
4. 4. Relatively elastic: The supply of a good increases at a faster rate than the price increase, so the supply curve shifts up on the graph and rises diagonally at a low slope to show that the price level has remained relatively constant even when there is a greater quantity of goods. This often applies to manufactured products that are easily made or have excess supply, which means they can increase production costs without charging a higher price.
5. 5. Perfectly elastic: When there is an extreme change in the demand for a good when the price falls or rises, the supply curve is a horizontal line. This shows that if the price increases there will be almost zero demand, and if the price decreases there would be almost infinite demand. This applies to goods that consumers are very sensitive to the prices of, such as concert tickets or luxury items.

While a supply curve is a graph representing the relationship between cost and quantity of goods, a demand curve is a graph that represents the link between the cost of a good and quantity demanded. It shows a downward-sloping demand curve that intersects the supply curve at the market equilibrium point, which is when the demand for a product and the supply are equal.

In economic theory, these concepts are usually referred to as the law of supply and demand. The law of supply is closely linked to the law of demand, which states that higher prices lead to lower demand, and lower prices lead to higher demand. The data from a demand curve can also be represented as a table, called a demand schedule.

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