Why the supply curve is upward sloping?
The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production. The higher marginal cost arises because of diminishing marginal returns to the variable factors.
Firms need to sell their extra output at a higher price so that they can pay the higher marginal cost of production. Hence, decisions to supply are largely determined by the marginal cost of production. The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production.
- The demand curve usually slopes downwards from left to right; that is, it has a negative association. The negative slope is often referred to as the "law of demand", which means people will buy more of a service, product, or resource as its price falls.
- Price and quantity supplied have a direct relationship. What do points on a market supply curve represent? Each point represents the quantity supplied by all producers in a market at a given price. The manufacturer would be willing to supply more games to the market.
- A change in the price of a good or service, holding all else constant, will result in a movement along the supply curve. A change in the cost of an input will impact the cost of producing a good and will result in a shift in supply; supply will shift outward if costs decrease and will shift inward if they increase.
When price fall the quantity demanded of a commodity rises and vice versa, other things remaining the same. It is due to this law of demand that demand curve slopes downward to the right. In other words, as a result of the fall in the price of the commodity, consumer's real income or purchasing power increases.
- Decreases in demand. Conversely, demand can decrease and cause a shift to the left of the demand curve for a number of reasons, including a fall in income, assuming a good is a normal good, a fall in the price of a substitute and a rise in the price of a complement.
- CHANGE IN QUANTITY DEMANDED: A movement along a given demand curve caused by a change in demand price. The only factor that can cause a change in quantity demanded is price. A related, but distinct, concept is a change in demand.
- A downward sloping demand curve illustrates the law of demand, showing that demand increases as prices decrease, and vice versa. In contrast, a demand curve that slopes upward and to the right indicates that demand for a product increases as the price rises.
Updated: 2nd October 2019