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pohnpei397 eNotes educator| Certified Educator

The basic reason why a supply curve slopes upward is because producers want to make as much profit as they can.  The fact that the supply curve slopes upward means that there is a direct relationship between the price at which the producer can sell their product and the quantity of the product that they can and will sell.  This makes sense because a higher price will bring (all other things being equal) a higher profit.   As the sale price of the good rises, the profit gained by selling it increases and the producer has a greater incentive to produce and sell a higher quantity.

 Another way to look at this is that firms have to keep their marginal revenues equal to their marginal costs.  This is an economic law because that is the way to maximize profit or minimize loss.  Because of the law of diminishing marginal returns, marginal costs tend to increase as a firm produces more of a thing.  When this happens, firms will need to charge higher prices so that their marginal revenue can continue to equal their marginal costs.

Thus, we have two main ways of explaining why a supply curve slopes upward.

thetall eNotes educator| Certified Educator

The supply curve slopes upwards because suppliers are motivated to increase supply when the price is high—a principle of profit maximization. Higher prices result in higher revenues for suppliers, which helps them meet the costs associated with running the business while making higher profits. However, it is important to note that higher prices will reduce demand except for products and services that customers cannot do without. In such a situation suppliers increase the supply, but the customers will not increase the demand. Thus, efficiency is achieved at the point (equilibrium) where the demand curve and supply curve intersect. The supply curve will also slope upwards because suppliers are trying to make a return on their investment. They will put their equipment and resources into effective use to ensure they produce more and reach many customers to increase their revenues.