Chapter 3
The supply

In analogy to the demand curve, the supply curve reflects the willingness to sell of all suppliers. The supply curve S(p) indicates, at a price p the total quantity of the good demanded.
A point on the supply curve has the following meaning (see graph): For this price (y-axis), this quantity of goods (x-axis) is offered.
Just like with the demand curve, the free variable (the price) is shown on the ordinate (y-axis) and the dependent variable (the quantity) on the abscissa (x-axis).
The (market) supply curve represents the sum of all individual offers.

Later, in the chapter "Theory of the firm", the production function and the parameters of the optimal supply function are analyzed in greater detail. Basically, we can distinguish two cases. On the one hand, the question of market entry or exit as a long-term decision. This decision is based on the long-term success of the company (profit). On the other hand, the optimal quantity supplied must be determined for the current market conditions (i.e. primarily, the price). In a competitive market, entrepreneurs are guided by their marginal costs, i.e. they will supply so many goods that the last unit supplied makes still a positive contribution. This is formalized by the statement: The marginal costs of the last unit supplied (i.e. the additional costs incurred by this unit) must correspond to the price of this unit. Thus, the supply curve is the marginal cost curve of the suppliers. Monopolists, on the other hand, can obtain an additional yield through a supply shortage.
The supply curve is generally positively sloped, i.e. the higher the price, the more is offered. There are two main reasons for this. Firstly, if the price is higher, more suppliers are willing to produce the good or obtain it and then sell it, i.e. the number of suppliers increases. Secondly, the individual supply also increases when the price is higher. In the ideal case companies produce at minimum cost. However, if higher prices allow additional profit to be made with an increase in business volume, then the higher costs caused by overtime or excessive wear on machinery are accepted.
Like demand curves, supply curves are actually step shaped, since only whole units or certain fractions can be demanded. However, for simplicity, supply curves are modeled as smooth curves, for example, straight lines like in the graph above. This is based on the assumption that if markets are sufficiently large, the steps are negligible.

(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743