What is a 'Supply Curve'

The supply curve is a graphical representation of the correlation between the cost of a good or service and the quantity supplied for a given period. In a typical illustration, the price will appear on the left vertical axis, while the quantity supplied will appear on the horizontal axis. 

BREAKING DOWN 'Supply Curve'

The supply curve will move upward from left to right, which expresses the law of supply: As the price of a given commodity increases, the quantity supplied increases, all else being equal.

Note that this formulation implies that price is the independent variable, and quantity the dependent variable. In most disciplines, the independent variable appears on the horizontal or x-axis, but economics is an exception to this rule.Supply Curve

Example of Supply Curve

If the price of soybeans rises, farmers will have an incentive to plant less corn and more soybeans, and the total quantity of soybeans on the market will increase. 

The degree to which rising price translates into rising quantity is called supply elasticity or price elasticity of supply. If a 50 percent rise in soybean prices causes the number of soybeans produced to rise by 50 percent, the supply elasticity of soybeans is 1. If a 50 percent rise in soybean prices only increases the quantity supplied by 10 percent, the supply elasticity is 0.2. The supply curve is shallower (closer to horizontal) for products with more elastic supply and steeper (closer to vertical) for products with less elastic supply.

Factors Affecting the Supply Curve

If a factor besides price or quantity changes, a new supply curve needs to be drawn. For example, say that some new soybean farmers enter the market, clearing forests and increasing the amount of land devoted to soybean cultivation. In this scenario, more soybeans will be produced even if the price remains the same, meaning that the supply curve itself shifts to the right (S2) in the graph below. In other words, supply will increase.

Other factors can shift the supply curve as well, such as a change in the price of production. If a drought causes water prices to spike, the curve will shift to the left (S3). If the price of a substitute — from the supplier's perspective — such as corn increases, farmers will shift to growing that instead, and the supply of soybeans will decrease (S3). If a new technology, such as a pest-resistant seed, increases yields, the supply curve will shift right (S2). If the future price of soybeans is higher than the current price, the supply will temporarily shift to the left (S2), since producers have an incentive to wait to sell.Supply Curve Shift

The terminology surrounding supply can be confusing. "Quantity" or "quantity supplied" refers to the amount of the good or service, such as tons of soybeans, bushels of tomatoes, available hotel rooms or hours of labor. In everyday usage, this might be called the "supply," but in economic theory, "supply" refers to the curve shown above, denoting the relationship between quantity supplied and price per unit. 

Other factors can also cause changes in the supply curve. Technology can also affect it. Any advances that increase production, making it more efficient, can cause a shift to the right in the supply curve. Similarly, market expectations and the number of sellers (or competition) can affect the curve. 

RELATED TERMS
  1. Demand Curve

    The demand curve is a representation of the correlation between ...
  2. Supply

    Supply is a fundamental economic concept that describes the total ...
  3. Quantity Demanded

    Quantity demanded is used in economics to describe the total ...
  4. Law of Demand

    The law of demand states that quantity purchased varies inversely ...
  5. Long The Basis

    Long the basis is the practice of purchasing a commodity and ...
  6. Decline Curve

    The decline curve is a method for estimating reserves and predicting ...
Related Articles
  1. Insights

    Introduction to Supply and Demand

    Learn about one of the most fundamental concepts of economics - supply and demand - and how it relates to your daily purchases.
  2. Investing

    Bond yield curve holds predictive powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  3. Insights

    How price inelasticity and inelasticity of demand differ

    Learn how supply, demand and pricing are interrelated by studying the concepts used by economists to measure pricing fluctuations.
  4. Insights

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  5. Investing

    Charles Schwab: Flattening Yield Curve Isn't Reason to Worry About Stocks

    While stock investors have plenty of worries, the flattening yield curve shouldn't be one of them, says Charles Schwab's Liz Ann Sonders.
  6. Investing

    Time to Buy Commodities, Trade War Concerns Oversold: Goldman

    The Wall Street powerhouse believes that the recent trade war-inspired commodity sell-off is overdone.
RELATED FAQS
  1. How does price elasticity change in relation to supply and demand?

    Learn how variations in price elasticity affect the supply and demand curves and what factors cause differences in elasticity. Read Answer >>
  2. What factors influence a change in supply elasticity?

    Learn about the supply elasticity of goods and services, some factors that influence supply elasticity and how these factors ... Read Answer >>
  3. What are some examples of the law of demand in real markets?

    Find out how the price of a good or service affects the quantity demanded, and explore instances of consumption reflecting ... Read Answer >>
  4. How does money supply affect inflation?

    Learn about two competing economic theories of the role of the money supply and whether money supply causes inflation in ... Read Answer >>
  5. If a particular good's price elasticity is high, does this mean the supplier should ...

    Learn the basics of price elasticity of supply and demand and how each influences a company's production of goods and pricing ... Read Answer >>
Trading Center