What is the graphical representation of the relationship of price to the quantity of supply of a product or service?

The number of goods or services produced and sold by businesses at a particular market price

Table of Contents Show

Understanding Quantity Supplied
Market Forces
Graphical Representation of the Supply Curve
Factors that Shift the Supply Curve
How Does The Supply Curve Work?
Shift In Supply Curve
Supply Curve Elasticity
Demand Curve vs Supply Curve
Frequently Asked Questions (FAQs)
Recommended Articles

Quantity supplied is the volume of goods or services produced and sold by businesses at a particular market price. A fluctuation in the price level leads to a change in the quantity supplied. The fluctuation is called the price elasticity of supply. Therefore, the quantity supplied depends on the price level, and the price of a product can sometimes be fixed by a regulatory body using price ceilings or floors.

A price ceiling forces the suppliers to sell their goods or services no higher than a particular price. An example of a price ceiling is rent controls in New York. When a price ceiling is implemented, suppliers will sell less of their products, as there is no intention to sell more due to the price cap.

A price floor is when the supply cannot charge or pay below a certain price. An example of a price floor is minimum wage.

Understanding Quantity Supplied

The goal of suppliers is to increase their profits. Generally, suppliers determine the number of products produced in the market at various price points, but they have no control over the quantity demanded.

Consumers will be able to buy products at the optimal price when market forces are allowed to operate freely without any government intervention. The relationship between consumers and suppliers is inverse, as suppliers want to sell their products at a high price, and consumers want to buy them at the lowest possible price.

Therefore, the ideal quantity supplied is where consumers and suppliers meet in the middle and where the demand curve intersects the supply curve. The point is called the equilibrium price point. Suppliers are willing to produce and supply their products at such a price point, and consumers are willing to pay for those products.

At a price equilibrium, it is advised that suppliers not change their quantity supplied to maintain optimal profits. This is because, at price equilibrium, quantity demanded remains constant, as an increase in supply will increase the suppliers’ unsold goods, and a decrease in supply will reduce revenue.

Market Forces

According to economic theories, markets should focus on achieving an equilibrium, but many forces prevent a market from achieving equilibrium. Many markets do not operate freely, as external forces – such as government regulations – influence supply.

Another important factor to consider is the elasticity of supply and demand. An elastic supply or demand responds to fluctuations in price, and when they are inelastic, they do not. It is the reason inelastic goods and services are not always in equilibrium.

Graphical Representation of the Supply Curve

The demand and the supply curves are plotted on the same graph. The y-axis is the quantity, and the x-axis is the price. The supply curve is upward-sloping, and the demand curve is downward-sloping, representing the inverse relationship between supply and demand.

The supply curve is upward sloping because the producers of products are willing to supply more goods at a higher price. The downward-sloping demand curve is because consumers demand less quantity at higher prices and will buy less at a higher price for a particular product.

Factors that Shift the Supply Curve

The following factors that affect the supply curve include:

1. Technology

When there are technological improvements in production, the supply curve shifts to the right. On the other hand, if the technology does not evolve and increase production, the supply curve will shift to the left.

2. Production Costs

There is an inverse relationship between production costs and input price concerning the supply curve. Hence, an increase in input price and production cost will lead to an opposite change in the supply curve and vice-versa. For example, a decrease in manufacturing overhead costs will shift the supply curve to the right, as it is cheaper to produce a good or service.

3. Price of Other Goods

In order to affect the supply curve, the goods or services must be related, and customers must think the relationship is relevant. Product substitutes are different from joint products.

An example of a product substitute is corn and soybeans as they utilize the same resource for poduction (farmland). If the price of corn decreases, farmers will grow more soybeans, and more land is available to grow soybeans. It increases the supply of soybeans.

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A supply curve is a graphical representation of the relationship between the number of products that manufacturers or producers are willing to sell or supply and the price of those items at any given time. While the price of the products is indicated on the X-axis, the quantity is plotted on the Y-axis when the other conditions affecting the elements remain constant.

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Source: Supply Curve (wallstreetmojo.com)

Suppose a change occurs in the conditions that are expected to remain constant. In that case, the direct impact is observed on the supply curve, which fluctuates, changing the interrelation between the product price and quantity for that period.

In microeconomics, the supply curve is an economic model representing the relationship between the number of products supplied and their price.
The supply curve will be upward sloping, and there is a direct relationship between the price and quantity.
Perfectly inelastic, inelastic, unit elastic, elastic, and perfectly elastic are the types of the curve elasticity.
Economists, governments, and manufacturers use it to understand consumer and market behavior.

How Does The Supply Curve Work?

The supply curve works on the law of supply that states how the volume of the products supplied increases with the increase in their prices, given the ceteris paribus conditions, implying the factors affecting the elements remain unchanged. Normally, the curve moves upward towards the right as the product prices and the quantity in which it is supplied are directly proportional to each other.

Even a minute change in the factors would significantly impact the curves, causing a supply curve shift. The factors that determine how it would look include labor productivity, input costs, technology, producer expectations, government actions, and a number of producers.

The figures to be plotted on the graph are obtained from the data gathered and recorded in the supply schedule. This schedule is the table consisting of the number of supplies and the quantity and price.

The relationship between the price and volume of the supplied products for a given time can either be plotted for an individual supplier or the market as a whole. When the entire market scenario is depicted via this curve, it is referred to as a market supply curve.

Shift In Supply Curve

When the shift moves towards the left, it indicates a decrease in the number of the products supplied. On the other hand, if the shift is towards the right, it signifies an increase. Let us consider two scenarios to understand how the change in the factors could impact the price-quantity curve:

Scenario 1

For the production of any consumer goodsConsumer goods are the products purchased by the buyers for consumption and not for resale. Also referred to as final products, examples of consumer goods include an Apple cellphone or a box of Oreo cookies. Consumer goods companies and the industry offer a vast range of products that heavily contribute to the global economy.read more, if the technology used for the process is good, the quality of products is sound. In this case, the supply curve will shift towards the right as there will be an increase in supply.

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Source: Supply Curve (wallstreetmojo.com)

An increase in product supply will mean increased sales, thereby more revenue generation for producers and manufacturers.

Scenario 2

In case the machinery and tools used for production malfunction, it will affect the number of products being manufactured for supply and have an impact on their quality.

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Source: Supply Curve (wallstreetmojo.com)

As a result, it will show leftward movement, indicating a decrease in the supplies with an increase in price.

Supply Curve Elasticity

While the curve mostly shows an upward slope, indicating the rise in the prices is directly proportional to the number of products supplied, the scenario is not always the same. Though, in most cases, the price increase leads to an increase in the volume of products supplied, the supply-price elasticityPrice elasticity of supply is a measure to identify how the supply of a particular product and service reacts with the change in the price. A higher price elasticity denotes that the producers and sellers of specific goods are highly sensitive to even the slightest changes or price fluctuations.read more might show diversions. This usually happens when the influencing factors don’t remain constant.

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Source: Supply Curve (wallstreetmojo.com)

The shifts, however, mark the curve’s elasticity, which can be of any form. When the curve is perfectly inelastic, the number of products supplied does not change with the increase in the price. As a result, the relationship is depicted through a straight vertical line.

If the curve is inelastic, the price of the products rises sharply at a pace faster than the rate at which the supply increases. Here, the graph shows a sharp upward slope. As a unit elastic form, on the other hand, the curve indicates an equally proportional rise in both the volume of product supplies and their price for that given period. Hence, a proportionate upwards slope is formed, indicating market equilibrium.

Next, there is an elastic curve, which marks the sharp increase in the supply of products faster than the pace with which their prices rise. Thus, the curve formed is the lower diagonal slope. Finally, the perfectly elastic curve signifies the change in demand for the goods in the market with the rise or fall of the product prices. As a result, the curve is a horizontal line.

Example

Let us consider the following supply curve example to understand how it works:

Based on a supply schedule, let us plot the price on the vertical axis and quantity on the horizontal axis.

Below is a schedule showing quantity (kgs) of coffee that a producer decides to supply at a given price:

Price ($)	Quantity (Kgs)
50	5
60	7
75	9
90	11
110	13
135	15
150	18

Supply Curve Graphical Representation

Demand Curve vs Supply Curve

The demand curve and supply curve are frequently studied to figure out the balance between the two elements.

While the latter indicates the relationship between the product prices and the quantity of supplies for a given period, the demand curveDemand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. That means higher the price, lower the demand. It determines the law of demand i.e. as the price increases, demand decreases keeping all other things equal.read more shows how the product prices and the demand for those items are related.

While plotting figures for the supply and demand curve together on a graph, a downward slope for the former intersects with the latter at the equilibrium point. This shows that the demand for a product and its supply is the same.

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Source: Supply Curve (wallstreetmojo.com)

Here, consumer surplusConsumer Surplus is the difference between the actual price that the customers pay for a product & the maximum price that they are ready to pay (for a single unit). You can calculate it by, Consumer Surplus = Maximum Price to be paid willingly – Actual Paid Price read more is the difference between the actual price that consumers pay for a product and the maximum cost of it they can bear.

Frequently Asked Questions (FAQs)

What is a supply curve?

The curve displays the relationship between the number of products producers or manufacturers are willing to supply and their prices. It is usually an upward slope, signifying the directly proportional effect of price on supply quantity, given the factors affecting the elements remain the same. However, if there is any change in the factors expected to be constant, the curve has a significant shift.

Why is the supply curve upward sloping?

The curve is upward sloping as it indicates the directly proportional relationship between the product prices and the number of products supplied. This means that if the price increases, the supply quantity will automatically increase, boosting the sale of those items and generating significant revenue.

What is the aggregate supply curve?

The aggregate curve denotes the total quantity of goods and services supplied at varied price levels. In short, the aggregate supply is considered with respect to the changing prices of the same set of products from time to time.