# Understanding the Law of Supply: Curve, Types, and Examples Explained

## What Is the Law of Supply?

The law of supply, a fundamental concept in [microeconomics](https://www.investopedia.com/terms/m/microeconomics.asp), asserts that as the price of a good or service rises, suppliers are eager to offer more of it, aiming to increase their [profits](https://www.investopedia.com/terms/p/profit.asp). Conversely, if prices fall, suppliers typically provide less. This law works alongside the law of demand to shape how resources and prices are determined across market economies.

### Key Takeaways

*   The law of supply asserts that as the price of a good or service increases, so does the quantity supplied by producers, aiming to maximize profits, while the opposite occurs if prices fall.
*   A supply curve graphically represents the law of supply, showing an upward slope where higher prices correspond to higher quantities supplied.
*   Factors influencing supply include consumer demand, the number of suppliers, competition, technology, and government policies, with external factors like weather affecting specific industries.
*   Alfred Marshall, a British economist, significantly contributed to supply theory by using the supply curve to illustrate that both supply and demand set prices and output.
*   The law of supply and demand collectively explains the balance in market economies, where sellers and buyers reach an equilibrium of price and quantity.

![The Law of Supply](https://www.investopedia.com/thmb/OKsqglqiwz24AYz8fzATrLzfHjs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/terms_l_lawofsupply_FINAL-63c8fbc006fb4bf4aeb50ea439991efa.jpg)

*— Daniel Fishel / Investopedia*

## Analyzing the Supply Curve: How Supply Varies with Price

The chart below depicts the law of supply using a [supply curve](https://www.investopedia.com/terms/s/supply-curve.asp), which is upward sloping. A, B, and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). So, at point A, the quantity supplied will be Q1 and the price will be P1, and so on.

![Supply Relationship](https://www.investopedia.com/thmb/FGAnBG_qxUgKkeyGz4BZyCaXKUA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Supplyrelationship-c0f71135bc884f4b8e5d063eed128b52.png)

*— Julie Bang / Investopedia*

The supply curve slopes upward because, over time, suppliers can choose how much of their goods to produce and later bring to market. At any given point in time, however, the [supply](https://www.investopedia.com/terms/s/supply.asp) that sellers bring to market is fixed, and sellers simply face a decision to either sell or withhold their stock from a sale; consumer [demand](https://www.investopedia.com/terms/d/demand.asp) sets the price, and sellers can only charge what the market will bear.

If demand rises over time, prices will increase, prompting suppliers to invest new resources into production, or attract new suppliers, boosting the [quantity supplied](https://www.investopedia.com/terms/q/quantitysupplied.asp). In a competitive market, demand ultimately determines price, while the price sets the quantity suppliers are willing to supply.

The law of supply, along with the law of demand, is essential in explaining how resources are allocated and prices are set in market economies.

> **Fast Fact**
>
> British economist Alfred Marshall significantly advanced supply theory, notably using the supply curve to demonstrate how supply and demand intersect like scissors blades at equilibrium to determine price and output.

## Real-World Applications of the Law of Supply

The law of supply summarizes the effect that price changes have on producer behavior. For instance, if the price of video game systems rises, a business will produce more; if the price falls, they will make fewer. The company might supply 1 million systems if the price is $200 each, but if the price increases to $300, they might supply 1.5 million systems.

Consider gas prices: when they rise, profit-driven firms take steps to increase supply, such as:

*   Increase exploration for oil reserves
*   Drill for more oil
*   Invest in more pipelines and tankers to bring the oil to plants where it can be refined into gasoline
*   Build new oil refineries
*   Purchase additional pipelines and trucks to ship the gasoline to gas stations
*   Open more gas stations
*   Keep existing gas stations open longer hours

The law of supply is so intuitive that you may not even be aware of all the examples around you. For example, when college students learn that computer engineering jobs pay more than English professor jobs, the supply of students with majors in computer engineering increases. If consumers start paying more for cupcakes than for doughnuts, bakeries will increase their output of cupcakes and reduce their output of doughnuts to increase their profits.

The law of supply can even impact your own employment. When your employer pays time and a half for overtime, the number of hours you are willing to supply for work might increase.

## What Are the Types of Law of Supply?

The five types of supply are market, short-term, long-term, joint, and composite. Additionally, there are two types of supply curves: individual, which graphs the supply schedule, and market, representing the overall market supply.  

## What Factors Affect Supply?

Supply is influenced by prices and consumer demand. The number of suppliers available, the level of competition, the state of technology, and the presence of government support or restriction will play important roles. For certain products like agricultural commodities, supply is also impacted by factors such as weather and crop yields.

## What Is the Law of Demand?

The [law of demand](https://www.investopedia.com/terms/l/lawofdemand.asp) is a fundamental principle of economics that states that at a higher price, consumers will demand a lower quantity of a good, and vice versa.

## What Is Supply and Demand?

The [law of supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) outlines the interaction between a buyer and a seller of a resource. Supply and demand law says that sellers will supply less of a product or resource as price decreases, while buyers will buy more, and vice versa, until an equilibrium price and quantity are reached. It incorporates both the law of supply and the law of demand.  

## The Bottom Line

The law of supply states that a higher price for a good or service will lead producers to supply more of that good or service to the market. This is because businesses want to increase their profits. When they can get a higher price for something, they will produce more of it than they will of other, lower-priced goods and services.

On the other hand, if prices fall, suppliers won’t produce as much. The law of supply is one part of the law of supply and demand.

> **Article Sources**
>
> 1.  Econlib. “[Alfred Marshall 1842–1924](https://www.econlib.org/library/Enc/bios/Marshall.html).”
>     
> 2.  Economic Research, Federal Reserve Bank of St. Louis. “[The Science of Supply and Demand](https://research.stlouisfed.org/publications/page1-econ/2021/03/01/the-science-of-supply-and-demand).”