Ceteris Paribus, as a price rises, the quantity supplied rises; as price falls, the quantity supplied falls:
| /
P2|--------/
| / |
P P1|----/ |
| / | |
|/ | |
+--------------
Q1 Q2
Q
Above: a supply curve, where P = price and Q = quantity. As the price of a good increases (P1 to P2), the quantity supplied increases (Q1 to Q2); while as the price decreases (P2 to P1) the quantity supplied decreases (Q2 to Q1).
Determinants of Supply:
The supply curve can shift to the left or the right by a change in anything but price: taste, number of buyers, income, prices of related goods, and expectations.
S3 S1 S2
| / / /
| / / /
|/ / /
P | / /
| / /
|/ /
+--------------
Q
Above: D1 is the original supply curve. S2 is an increase in demand, while S3 is a decrease in demand.
There are three types of related goods: