Question

Why does supply curve slope upward to the right?

Answer 1

The quantity supplied and the commodity’s price are positively correlated, according to the law of supply. A supply curve with a positive slope indicates it. The three elements listed below can be used to explain a supply curve’s positive slope:

1. The first is that the quantity of profit is determined by the price level. Ceteris paribus, the profit that can be made increases with the commodity’s price. As a result, producers are incentivized to produce and sell more of the commodity. Therefore, the commodity’s price acts as a motivator for the producer to create it. With everything else being equal, the producer is more motivated to increase production and supply in the market when the price is higher.
2. The increase in the marginal cost of manufacturing is another factor contributing to the supply curve’s positive slope. Due to the law of diminishing returns, the marginal cost of production rises as output rises, as will be discussed in a later chapter. Generally speaking, when production volume rises, so does the marginal cost of manufacturing. This suggests that in order to offset the higher cost of production, the manufacturer would be willing to make and supply a greater amount of a good only at a higher price.
3. In addition to encouraging current producers to increase their output, a price increase would encourage other potential producers to increase their output as well in order to increase profits. For instance, farmers would be encouraged to produce more rice rather than other items like wheat if the price of rice increased. In order to produce rice, the farmers would divert resources from the cultivation of wheat and other goods. As a result, more businesses are eager to enter the market to make the goods at greater rates. Consequently, the amount of a commodity supplied rises.