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The Supply Curve in Microeconomics

The Supply Curve in Microeconomics
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  • 0:02 Definitions
  • 2:04 Characteristics of a…
  • 3:52 Movement Vs. Shifting
  • 6:10 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Learn about the supply curve and its unique characteristics. Find out some of the common terms used when discussing the supply curve and the difference between a movement along a supply curve and a shift of the entire curve. See some examples of each.

Definitions

Have you ever went to the grocery store, home improvement store, or maybe even to the video store and found out that they didn't have what you were looking for? There may be several different reasons for why the seller had run out or wasn't carrying the product you were looking for, but in the most simple terms, you experienced a supply issue.

With that in mind, let's explore a few of the most common terms when speaking about supply in economics. First, you must know that supply refers to the various quantities offered for sale at various prices. This can be thought of as the entire supply curve, which we will get to in a moment. Sometimes confusing and important to distinguish is the term quantity supplied, which refers to a specific quantity offered for sale at a specific price. This can be thought of as a single point on the supply curve. For example, a bread manufacturer may be willing to supply 500 loaves of bread at $1, 1,000 loaves at $2, and 3,000 loaves at $3. Each one of those points can be referred to as quantity supplied.

In economics, one of the most fundamental ways we study the effects of supply and the goods we like to purchase is by analyzing a supply curve. A supply curve is a graph of the relationship between product price and the quantity of product that a seller is willing and able to supply at that price. It's simply a line that's created by plotting all the possible quantities of a product that a seller or producer is willing to offer at different price points. In general, the supply curve's shape and foundation come from the law of supply, which states that more of a good will be supplied the higher its price, other things constant. On the flip side, it can be stated that when less of a good is supplied, the lower its price will be (assuming all other things are constant).

Characteristics of a Supply Curve Graph

Now that we've got some of the most common and fundamental definitions of supply down, let's dive a little deeper into the characteristics of the supply curve. Identical to a common demand curve, the supply curve is measured with product price on the vertical axis of the graph and quantity of product supplied on the horizontal axis. This allows us to put supply and demand lines together on the same graph!

In most cases, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related. As the law of supply states, more product will be supplied at higher prices. This is what makes the supply slope go upward. For example, you may have seen this in real estate. Maybe you can think of friends or family that decided to sell their home when the price of real estate went up in their neighborhood. Likewise, when the price went down, they may have taken their home off the market or decided not to sell and wait for better prices! Higher prices of homes usually result in more sellers while lower prices means less sellers.

To drive home the point, think about something you might have and want to sell. Maybe you have a collection of 100 sports figurines that you really admire. If someone offered you $5 for each figurine, you might be willing to sell 20 of them to get a little cash. If they offered you $8 each, you might be willing to sell 50 of them; $10 each and you would offer all of your prized collection to them. Can't pass up that profit!

Movement vs. Shifting

Just as there can be shifts and movements in the demand curve, there can also be shifts and movement along the supply curve. Other lessons will go much more in detail about different shift factors and how they work, but for the purpose of this lesson, it's worth mentioning a few of the things that cause the entire supply curve to shift left or right. They are:

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