Supply Function and Supply Curve

Supply Function

When the quantity supplied is expressed only as a function of the price of the product, other factors remaining constant, it is called a supply function. The following is a simple supply function:

The positive sign indicates that the price and quantity supplied are positively related, i.e., when the price increases, the quantity supplied will also increase. In the above example, for every $1 increase in price, the quantity supplied will increase by 1.5 units.

Supply Curve

The information from the supply function can be plotted as a simple graph with quantity supplied on x-axis and price on y-axis. This is called a supply curve.

The equation plotted is the inverse supply function, P = f(Qs)

A point on a direct supply curve can be interpreted as follows:

• Maximum amount of a good that will be offered for sale at a given price
• Minimum price necessary to induce producers to voluntarily offer a particular quantity for sale

The supply curve illustrates the law of supply. The law of supply states that when the price of a good rises, and everything else remains the same, the quantity of the goods supplied will increase.