The Supply Curve is the diagrammatic representation between the price of a product or service and the quantity suppliers are willing to sell in the market.  In most instances, the Supply Curve slopes upward indicating a direct relationship between price and quantity supplied.  The following diagram represents a typical Supply Curve.

The exact shape of the Supply Curve is dependent on the underlying business.  And so, there are many resulting variations.  But this goes beyond the scope of this short explanation. For simplicity we’ll draw our Supply Curve as an upward sloping line.  Also, note that we’ve put product price on the vertical axis and the quantity of the product made available on the horizontal.  Again, there’s a good reason to do this that goes beyond this explanation.

As you can see in the diagram, when product price is low sellers want to sell fewer units than when the price is higher.  The explanation for this direct relationship relates to “opportunity costs”. 

Imagine that you’ve been approached by a friend who’s starting a tutoring business.  She’d like you to cover basic Economics.  Her plan is to offer tutoring on Saturdays.  She asks you how much you’d charge her to cover an hour of tutoring sometime during the day.  For sake of example, you respond that you’d be happy to help.  $10 would cover it and you’d be available around 11am.  She later asks if you could perhaps cover an additional hour, so 11am to noon.  You’re not excited about spending a second hour but tell her you will, but you’d like to increase your price to $12 in that case.  This continues over the course of the week.  It’s now Thursday and she texts you and asks if you can also cover the 6pm to 7pm slot.  She says she’s desperate.  You tell her that you have plans Saturday night and the only way you consider staying around for even another hour on top of the seven you’ve agreed to is if she pays you $200 for that hour.

Ridiculous example, but then not at all.  What’s going is that your opportunity cost is increasing as she keeps adding hours.  At 11am, you didn’t really have anything going on and didn’t mind coming over to help.  And at noon, you weren’t excited but still didn’t have a lot going on.  But as she keeps adding hours, the value of what you give up also increases.  Perhaps you planned to do some shopping Saturday afternoon.  When she asked you to cover those hours, you had to factor in the value to you of that time shopping.  And when it’s finally 6pm and she’s again asking, you realize that if you agree, you’ll have no Saturday at all.  The only way you’d agree is if you made some real money.

How does this relate to the Supply Curve?  If the amount she’s paying tutors is low, say $10 an hour.  Other tutors and you aren’t going to be willing to commit very many hours.  You aren’t going to be willing to give up shopping for example for only $10.  And you certainly aren’t willing to forgo going out that night with friends.  But, if tutoring were going to pay $250 an hour, you’d almost certainly think differently.  You didn’t really need to go shopping, and that’s a lot of money.  And so, at least in the short run, the supply of tutors will increase with the price paid.

This same logic applies to most business activities.  At low levels of production, opportunity costs are low.  But as a business expands, the opportunity costs of the needed resources increase as well.  Imagine a home builder.  At first plots of land are easy to find and relatively inexpensive.  But as the builder expands his business, he’ll need to find more and more property to build on.  If he’s committed to staying in one community, say Saint Louis city, then this will mean that the additional lots will have greater value in other uses.  The price of the lots to the builder will start increasing.  And so, when new house prices are low, it’s only profitable for him to build a few homes.  But when new house prices are high, it’s easier to cover these higher costs and still make a profit.

What might affect the willingness to sell goods other than just price?  In the case of our builder, changes in the price of lumber, or the wages he needs to pay workers matter.  But with one exception, the answer is anything that affects cost.  So, what would be the impact of an increase in lumber prices for example?  The following diagram represents this impact.  The Supply Curve has shifted leftward.  Now at any given new house price, the builder wants to sell fewer.  That’s because the (opportunity) cost he must incur has increased making houses that were once profitable no longer profitable to build.

When something other than price results in a change in the quantity available, we refer to this as a “change in supply” (versus a change in “quantity supplied”).  Changes in Supply can be negative, as in our case above, or positive.  For example, government subsidies to builders would increase their profitability per house and therefore increase their willingness to build houses.

The following is a generic list of things that might affect Supply.  Note that we’ve left off changes in price.  A change in price simply causes us to move from one price-quantity combination on a Supply curve to a different price-quantity combination on the same curve.

• Change in Resource Costs – The most obvious to include first is the direct cost of resources.  For a house builder, the costs of land, lumber, and labor are the most important.  For electric cars, it primarily battery cost.  And for tutoring, it’s almost all labor costs.  Regardless, an increase in cost will cause a decrease in Supply resulting in a leftward shift.  A decrease in cost will cause the curve to shift right.
• Price of Related Goods – How might a substantial increase in the need for Accounting tutors impact the market for Economics tutoring?  If the price that Accounting tutoring services can charge, and therefore pay, increases substantially, it affects the opportunity cost of providing Economics tutoring.  For example, let’s say you’re making $15 an hour as an Economics tutor.  But you’re offered $20 to provide Accounting tutoring.  Despite the enjoyable nature of Economics, you jump ship and start tutoring Accounting.  What happens to the market for Economics tutoring?  The availability of tutors will decrease, in turn decreasing the ability of an Economics tutoring service to provide the same amount of service at the same price.  The Supply Curve will shift left.  Accounting and Economics tutoring are “substitutes in production”.  But there is also such a thing as a “complement in production”.  An increase in the number of people flying post-Covid will results in an increase in the number of flights.  But that will increase the ability, all else equal, for airlines to fly cargo from city to city.  And so, the increase in the demand for plane tickets will have the added effect of increasing the supply of air cargo.
• Number of Sellers – Above I mentioned that there was one exception to changes in cost.  This is it.  Simply put, the greater the number of potential suppliers, the larger the resulting supply.  A substantial increase in the number of people qualified to tutor Economics will result in it being easier for the Economics tutoring service to provide tutors at any given price, resulting in an increase in Supply.
• Taxes and Subsidies – This is pretty obvious.  The only thing to be cautious of is whether the tax or subsidy impacts the buyer or seller directly.  For taxes that have to be paid by the seller, this is simply another cost and should be treated the same as an increase in resource costs.  But if the tax is paid by the buyer after the transaction, it has no effect on Supply.  A subsidy is simply a negative tax.  And so, a subsidy on the production of renewable energy for example, will be equivalent to a decrease in the cost of producing renewable energy in turn increasing Supply.

The overall impact of any of these changes is indeterminate.  For anything other than a change in price, we’re looking at either a rightward or leftward shift in Supply.  But the overall impact depends on both Demand and Supply.