There are few things we need to consider before discussing the supply curve. Supply and demand analysis can:

1. Help us understand and predict how real world economic conditions affect market price and production
2. Analyze the impact of government price controls, minimum wages, price supports, and production incentives on the economy
3. Determine how taxes, subsidies, tariffs and import quotas affect consumers and producers.

The Supply Curve

The relationship between the quantity of a good that producers are willing to sell and the price of the good.

It Measures quantity on the x-axis and price on the y-axis. Mathematically:

Graphically:

Factors Effecting Supply Curve

Just like demand which is effected by internal and external Factors. So is the Supply.

1. Costs of Production
2. Technology

• Cost of Production
  • Labor
  • Capital
  • Raw Materials

Lower costs of production allow a firm to produce more at each price and vice versa.

The cost of raw materials falls

• At first Production is  Q1 at P1 and Q0 at P2
• Now after the cost of raw material decreases. Production is  Q2 at P1 and Q1 at P2
• Supply curve shifts right to S’.

Same is the Case for Technology. An enhancement in Technology leads to cost effective production due to which the Supply Curve Shifts rightward. As a result, the QS increase  and price and Vice Versa.

 

Change in Supply and Change in Quantity Supplied

 

Change in Quantity Supplied

• Movement along the curve caused by a change in price. In other words, thee is only a change in Quantity Supplied when prices changes. Or Factors within the Graph (Price).

Change in Supply

• Shift of the curve caused by a change in something other than the price of the good would result in a change in Supply. Just like we described Technology and cost of Production that effect Supply Curve other than Price.