Why do supply curves slope upward from left to right?
Why don't we sometimes draw them sloping downward from left to right?
Under what conditions would it be sensible to draw a supply curve that is horizontal(perfectly elastic)?
Under what conditions would it be sensible to draw a supply curve that is vertical(perfectly inelastic)?
Show way supply curve of the firm and industry slope upward to the right
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The slope of supply curves generally goes upward from left to right due to the law of supply, which states that as the price of a good or service increases, producers are willing to supply more of it. There are a few key reasons for this behavior:
1. Production costs: In most cases, as producers increase their output, they may experience diminishing marginal returns. This means that each additional unit of production becomes more costly, as it requires additional resources and inputs. Therefore, producers require higher prices to cover these increasing costs and maintain profitability.
2. Opportunity cost: Higher prices can incentivize producers to allocate more resources and effort into producing a particular good or service. This implies that they have to forego producing other goods or services with those resources. Therefore, as the price goes up, producers are willing to supply more of the good or service because the increased profits outweigh the opportunity cost of producing alternative goods.
As for downward sloping supply curves, they generally do not occur because they would contradict the basic principles of economics. A downward-sloping supply curve would imply that producers are willing to supply less of a good or service at higher prices, which contradicts the law of supply and typical market dynamics.
However, there are scenarios where it might be sensible to draw a horizontal (perfectly elastic) or vertical (perfectly inelastic) supply curve:
1. Horizontal supply curve (perfectly elastic): This would occur when producers can supply an infinite quantity of a good or service at a specific price. For example, if there is a surplus of a particular good, such as excess inventory or excessive production capacity, producers may be able to increase supply without significant cost increases. This could be the case for goods with easy production scalability, abundant resources, and low production costs.
2. Vertical supply curve (perfectly inelastic): This would occur when the quantity supplied remains constant regardless of the price change. This could happen in situations where the production of a good or service is severely limited by factors like scarcity of resources or production constraints. For instance, if a good has a limited supply due to rare raw materials or production bottlenecks, the supply curve may be vertical, indicating that the quantity supplied does not change regardless of price fluctuations.