Supply Curve and its Slope

Supply is the quantity of goods and services that a supplier wishes and has the ability to supply on different rates, everything else remaining constant. Generally, supply shows a direct relation of price levels of products and the suppliers’ willingness to supply at these price levels: When the seller thinks he will be able to sell more, he will have to work towards increasing the production of the goods and services. This portrays that the supplier will be readily Available to increase the production given the increase in the rates of goods and services.

A tabular representation, of the interdependence of changes in prices and a respective change in quantity supplied, is known as supply schedule. The supply curve is a graph based presentation of the supply matrix that represents the relation of  price rate of a product and the quantity available for selling.

What is the Supply Curve?

The supply curve is a curve that portrays the relation of rate and product to be supplied. The curve is the representation of price and quantity data on the X and Y axis of a graph that depicts the willingness of the supplier to sell the quantity of their product/services at different price levels. This dataset is generally given in a tabular format, which is known as the supply schedule. 

Using the data given in a supply schedule of different suppliers, the overall supply curve can be drawn, that will depict the market supply scenario. The cumulative supply curve can be regarded as the different quantities that the suppliers in the market are willing to sell at different price levels.

Law of Supply and Supply Curve

The law of supply asserts that a rise in price leads to an increase in quantity supplied, while all other conditions remain constant. To simply put, price levels and quantity supplied have a direct relation: quantities affect similarly as the change in prices. If observed, we can say that whatever is asserted through the economic theory of the law of supply is portrayed in the supply curve and its slope.

Factors affecting the Supply Curve:

Raw Materials – Availability and Pricing of Raw materials have a direct impact on the supply curve. Raw material affects the level of supply, thus directly affecting the supply curve.

Demand Prediction – Expected demand of the product, enables the supplier to align his supply with the probable level of requirement, thus impacting the Supply Curve.

Increase or Decrease in Number of Suppliers – The number of Suppliers can impact the level of market supply, More suppliers will produce more while lesser will be producing lesser.

Innovations – Innovation can dramatically impact the supply curve. The latest way of production can help in better output whereas an outdated technique can lead to poorer levels of output.

Assumptions of the Supply Curve

• The market has perfect competition.
• The supplier has no control over the prevailing prices of the products in the market. This entails that the supply curve presents the solution to the problem of the willingness of a supplier to sell at different price levels. This assumption validates because if the supplier holds any power over quantity supplied at different price levels, it will eliminate the basic assumption of perfect competition and the whole supply curve will lose its validity.
• Free entry and exit for all the market players. This assumption indicates that under a competitive market scenario. Suppliers are free to enter or exit the market, meaning the quantity produced is dependent on the prevailing price in the market. When the prices will rise, the production will rise as more and more players will enter to exploit the rising pricing benefit. Similarly, when the prices of the product fall, the quantity produced will decrease as players will start exiting the market due to the tightening of margins.
• The supply curve can be plotted by gathering the data of the willingness of the suppliers to sell at different price levels. As the market prices increase the increased quantity that the supplier will be willing to sell can be assumed and by creating such a hypothesis a supply curve can be created. The same process can be undertaken with various suppliers of the market and eventually by taking the cumulative value of a quantity that can be supplied at the different price levels and market supply curve can be plotted.

Supply Curve Slope

Rising slope of the supply curve is mainly because economic activity is conducted with the purpose of generating profits. When the market price of goods rises in response to increased demand, it becomes more profitable for businesses to respond by expanding output. An upward supply curve demonstrates this increase.

Reasons for Upward Slope

• To improve the profitability of the business, as the prices of goods increase with the increase in demand, suppliers increase their output. 
• To cater to the incremental cost of production for higher supplying ability, it becomes necessary to increase the to sell at a higher price.
• When the prices of products rise with increased supply,  the market becomes more lucrative for the new entrants, which subsequently creates a higher level of supply of products.

In principle, the supply curve will be vertically sloping in the long run, corresponding with a constant supply level, rather than upward sloping. This is because the fundamental premise is that, in the long run, a good’s supply is solely determined by the investment, technologies, and raw materials available.

The movement of supply curve

Rightwards – depicts the increase in supply for a given increase in prices

Leftward – Depicts decrease in supply for a given decrease in prices.

Conclusion

One factor that depicts the price-to-quantity connection that ensures a working market is the supply curve, demand is the other factor. When the supply and demand curves are graphed together, they will meet at the market equilibrium – the point where supply equates to demand, and the market is left with no excess demand or supply.