Now that we have covered demand in some detail, we can breeze through the concept of supply rather quickly. While consumers are less willing to purchase goods at high prices compared to low prices, firms, on the other hand, prefer higher prices and are willing to supply more of a given product at a higher price than at a lower one. After all, most firms are in a business to make profits and profits are generally higher when prices are high.

Price and quantity supplied: the law of supply

The supply of a product is the relationship between its price and the quantity supplied. If it is a positive relationship (a price increase), the quantity supplied increases. This relationship is known as the law of supply.

If we list different combinations of prices and quantity supplied for a product, we get the supply schedule for the good. This is shown in the following table:

Just as we did with demand, we can plot price and quantity supplied on a graph. But now we get a line that slopes upward to the right. This shows there is a positive relationship between these two variables, as stated by the law of supply. The supply curve for a product is shown below:

To more fully understand the supply curve and how it is constructed, try the following active graph exercise:

Active Graph Level 1: The Supply Curve and the Law of Supply

• Other Determinants of Supply
• From Individual Firm to Market Supply