The law of supply

Supply: is the total amount of goods and services that producers are willing and able to purchase at a given price in a given time period.

 The law of supply: states that "as the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus".

  • price rises but costs do not change → profitability increases → supply more (increase profits)

The supply curve

Supply curve: represents the relationship between the price and the quantity supplied of a product, ceteris paribus.

Figure 1.3 - The supply curve

The non-price determinants of supply (factors that change supply or shift the supply curve)

The non-price determinants of supply (shifting):

  1. Changes in costs of factors of production: Increase in costs of production → supply shifts to the left
    • land 
    • labor
    • capital
    • entrepreneurship (human capital or intellectual capital)
  2. State of technology: Improvements in technology supply shifts to the right (natural disasters may move the technology backwards → supply shifts to the left)
  3. Price of relating product (joint/competitive supply): if producer could produce another product with higher profit, due to limited resources, the supply for the existing product decreases.
  4. Expectations: if demand for the product is likely to rise supply increases (ready to supply more in the future and gain higher profit)
  5. Indirect taxes & subsidies: 
    • Indirect taxes → increase costs → supply shifts left
    • Subsidies reduce costs → supply shifts right
  6. Number of firms in the market: more firms producing → supply shifts to the right → more are being supplied at each price level

Movements along and shifts of the supply curve

Movements along the supply curve:

  • A change in price of the good itself leads to a movement along the existing supply curve (price is the axes), while a change in any other determinants of supply will always lead to a shift of the demand curve to either left or to the right.
Figure 1.4 - Movement along and shift of the supply curve

Linear supply functions, equations and graphs

Linear Supply functions: 


  • c = quantity supplied when price is zero
  • d = slope of the curve 

Price $


Quantity supplied














  • c changes shift of supply curve
  • d changes change of steepness of supply curve