Supply Curve

The supply curve SS is obtained by plotting the supply schedule and joining the various points. The reason behind the positive relationship between the price and the quantity supplied of a product are explained as under:

1. Profit Consideration

The basic main of producers is to secure maximum profits. Per unit cost remaining unchanged, the higher the price, the price, the larger will be the profit that can be earned, and the greater will be the incentive to produce and offer the commodity for sale.

2. Law of Diminishing Returns

The Law of diminishing implies that the cost of production increases as the level of production rises due to declining factor productivity. It implies that producers would be prepared to produce and supply a larger quality of a commodity only at a higher price so as to cover the higher cost of production.

3. Shift of Resources

The rise in the price of a product would give incentive not only to the existing producers of the product but also to motivate other prospective producers to produce this commodity so as to earn higher profits. For example, a rise in the price of rice would motivate to produce more rice at the expense of other goods like wheat, maize, etc.

4 Change in Number of Firms

A rise in price induces prospective producers to enter into the market to produce the given commodity so as to earn higher profits. An increase in the number of firms increases the marker supply. However, as the price starts falling, some firms which do not expect to earn any profits at a low price either stop production or reduce it.

A supply schedule is a tabular presentation of the various quantities supplied of a commodity at different prices.

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