Supply curves are traditionally represented as upward-sloping because of the law of diminishing marginal returns. The supply curve for a given firm is derived directly from its marginal cost curve where the price is greater than or equal to the minimum cost on the average variable cost curve. The main determinants of supply will be the market price of the good and the cost of producing it. For example, the potato growers may be willing to sell 1 million lbs of potatoes if the price is $0.75 per lb and substantially more if the market price is $0.90 per lb. i.e., it is the plan expressing quantities of a product that producers are willing to sell at given prices.

Supply is the amount of output available in the market. However, unlike general equilibrium models, supply schedules in this partial equilibrium model are fixed by unexplained forces. The theory of supply and demand is important for some economic schools' understanding of a market economy in that it is an explanation of the mechanism by which many resource allocation decisions are made. It formalizes the theories used by some economists before Marshall and is one of the most fundamental models of some modern economic schools, widely used as a basic building block in a wide range of more detailed economic models and theories. The model is only a first approximation for describing an imperfectly competitive market. In microeconomic theory, the partial equilibrium supply and demand economic model originally developed by Antoine Augustin Cournot (published in a book in 1838) and thirty years later broadly publicized by Alfred Marshall attempts to describe, explain, and predict changes in the price and quantity of goods sold in competitive markets.

The graph depicts an increase in demand from D 1 to D 2 along with the consequent increase in price and quantity required to reach a new market-clearing equilibrium point on the supply curve Supply Curve A curve or a schedule showing the total quantity of a good that sellers want to sell at each price.(S). The theory of supply and demand describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand).

Marginal cost and supply curve