Wondering Why?

Why is supply curve upward sloping?

Why is supply curve upward sloping?

The principle behind the supply says that if the price of a commodity is high, the quantity of that commodity sold will also be high. The quantity of goods that are produced at a particular price represents the supply curve. When the production of goods increases the cost of production of these goods as well as other goods also increases. Even if the price of the commodity is less, the most effective method of making it will be utilized and hence its preparation cost will be more. If the cost of the commodity is high, then the effective way of creating that commodity will not be utilized. The non-effective way of making that commodity tends to give more profits.

If the marginal cost of the product is equal to that of the marginal revenues, then the company will tend to show that the supply curve is towards up. The upwards slope of the supply curve reveals that with the increase in the price of the commodity in the market, the number of companies ready to supply that commodity increases. The marginal cost curve of a company in the competitive market will come to a U-shaped one. If the market is really competitive, the upward part of the curve in the U-shaped curve will explain the supply curve of the company. Here the quantity of the goods supplied by the company is referred by a location on the curve where market price and marginal cost were same. As the time progresses, this location will reach to the bottom of the U-shaped marginal cost curve. There are certain exceptions to the rule that the cost of production of the commodity might be less, even if the commodities are more. In this context, the upward slope of the supply curve is not seen.

The law of diminishing outputs represents the upward slope of the supply curves of the company. More production enhances the prices still more as the outputs are increased. In order to improve and develop the production quality and quantity, the prices of the commodities will be high. As the prices are increased, the ability of the company to produce more output also increases. Hence the supply curve has upward slope.

Share

Related Topics :



Do you think the article can be improved? Share Your Expertise

Please note: comment moderation is enabled and may delay your comment. There is no need to resubmit your comment.