# Supply curve equation

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 a 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 the slope of the 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 the higher cost of production

### Effect of tax on the supply curve

P = 0 +2Q

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

P = 5+2Q

An Indirect tax will shift the 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 the supply curve

Suppose we have a supply curve

P = 30+0.5Q

After a subsidy of £10

P = 20+0.5Q

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