The market supply curve shows the combined quantity supplied of goods at different prices.

The market supply curve is the horizontal sum of all individual supply curves.

### Linear Supply curve

A linear supply curve can be plotted using a simple equation P

= a + bS

a = plots the starting point of the supply curve on the Y-axis intercept.

b = slope of the supply curve.

**P = 30+0.5(Qs)**

### Inverse supply curve

This plots the same equation in terms of Qs

**2(P-30)= Qs**

**Example of linear supply curve**

**P = 30+ 0.5(QS) **

Q | P |

0 | 30 |

10 | 35 |

20 | 40 |

30 | 45 |

40 | 50 |

50 | 55 |

60 | 70 |

### Shift in slope of supply curve

P = 30+ 1.2(QS)

**P=30+1.2(Qs) **

Q | P |

0 | 30 |

10 | 42 |

20 | 54 |

30 | 66 |

40 | 78 |

50 | 90 |

**Shift in a – Shift in the supply curve **

P = 0 + 1.2 (Qs) shifts the supply curve downwards so it starts at the 0,0.

### Why is supply curve generally upward sloping?

Generally, a higher price encourages firms to produce more. This is for two reasons.

- A higher price makes the good more profitable to produce.
- In the short term, the cost of production (marginal cost) is affected by the law of diminishing marginal returns. Increasing output with capital fixed leads to a point where marginal costs rise rapidly, so the firm needs a higher price to compensate for higher cost of production

### Effect of tax on supply curve

P = 0 +2Q

A specific tax will shift supply curve upwards by £5. After tax. The supply curve will be

P = 5+2Q

An Indirect tax will shift supply curve upwards by a certain percentage. e.g. VAT = 20%

P = 0+2Q. After VAT will be P = 0+(2Q * 1.2)

### Effect of Subsidy on supply curve

Suppose we have supply curve

P = 30+0.5Q

After subsidy of £10

P = 20+0.5Q

**Related**

- Linear demand curve equation
- Factors affecting supply
- Price elasticity of supply
- Market equilibrium with equations