Individual Supply and Market Supply: Videos & Practice Problems

Understanding the relationship between individual suppliers' supply curves and the market supply curve is crucial. Market supply is derived by summing individual supply curves from suppliers like Papa Yum's and Domino's. As prices increase, the quantity supplied also rises, illustrating the law of supply. For example, at a price of $2, the market supply is 2 pizzas, and at $10, it reaches 18 pizzas. This aggregation of supply curves helps determine the total market availability at various price levels, essential for analyzing market dynamics.

Individual Supply and Market Supply

So now let's see the relationship between the individual supplier's supply curve and the market supply curve. Just like with demand, we've got individual supply curves for every single supplier, and when we want to find out the market supply, what we're going to do is sum all the individual supply curves. So we've got a pretty simple market here. We've got two suppliers, Papa Yums and Dominopes, making supreme pizzas. So at different levels of price, we are going to see different levels of quantity supplied from each supplier. And if we wanted to find out what the market supply is going to be, all we have to do is sum all the suppliers' individual supply curves, right? In this case, we only have two, so it should be pretty easy.

Let's start with a price of $2. So Papa Yum's is going to supply 2 supreme pizzas at that price, and Domino's is not going to get involved in the market. So we're going to have a market supply of 2 at a price of $2. And how about at a price of $4? We're going to see market supply coming up to 6. Let's keep going here. At a price of $6, Papa Yum's makes 8 pizzas, Domino's makes 2, and we're going to get 10 pizzas, and notice we're seeing the supply is increasing as the price increases and that goes hand in hand with our law of supply.

Alright, so 11 + 3, we've got 14 at a price of $8 and at a price of $10, the market will supply 18 pizzas. Right? So let's go ahead and let's graph the individual supply curves and the market supply curve. So let's start here with Papa Yum's, which is going to be in this second column here, and we're going to take the prices and the quantity supplied for Papa Yum's. So just like before, right, we've got our price axis there, our quantity axis down here, and let's go ahead and graph these points. So at a price of $2, Papa Yum's will supply 2 pizzas right here. At a price of $4, they will supply 5 pizzas in the middle of 4 and 6. At a price of $6, they will supply 8 pizzas. Price of $8, 11 pizzas. And at a price of $10, 14 pizzas.

I just realized I have this cool little tool over here. It should hopefully make my line making a little better. Look at that. Too bad you guys can't do the same thing. Right? Well, there is my supply curve. You know what, I want to make it red. So in the end, I'm just going to drop myself here. Oh well, let's see what I get here. Close enough. There is Papa Yum's supply curve. Alright, I'm going to write that in here. Papa Yum's supply. That's going to be this red line right here and that shows us at all the different prices, how many pizzas Papa Yums is willing to supply to the market.

Let's do the same thing with Domino's. So at a price of $2, they well, let's label our axes, right? Pq. At a price of $2 they are not going to supply any, so we are actually going to see a price of 2 and a quantity of 0 right there. Oh, let me get out of the way. Okay. And at a price of $4, they are going to supply 1. At a price of $6, they'll supply 2. Price of $8, they'll supply 3. And at a price of $10, Domino's will supply 4 pizzas. So there we go. Let's go ahead and connect our dots here and get, oops, Look at me. Alright. Let's get this line. Very steep line. There is our supply curve for Dominoes. Cool.

So that whole line is the supply curve, and let's go ahead and make our market demand. So just like before, or excuse me, our market supply. So right here, we're going to add the Papa Yum supply to the Domino's supply, and that's going to give us this column here on the right, right. Those were our total market supplies at the different prices. So let's go ahead and scroll down to our market supply graph and let's go ahead and get those in there. Alright. So we had at a price of $2, we're going to supply 2 and there's space for me here, so I'm going to come in. Alright. So let's go ahead and graph that. So the market supply at a price of $2, price being our Y-axis here, quantity being on our X-axis. So at a price of $2, we are going to supply 2. Right? At a price of $4, we're going to supply 6. Price of $6, we will supply 10. We're the whole market, not we, right. At a price of $8, we're going to supply 14 and at a price of $10, the market is going to supply 18 supreme pizzas. So let's go ahead, make our supply curve here, and that is our market supply. So notice what we did was sum all the individual supply curves and we came up with our market supply. So now we will know how much is going to be available at different prices in the whole market. Cool, so when you're asked to find the market supply, you just have to sum the individual supply curves. Alright, let's move on.

Here’s what students ask on this topic:

What is the relationship between individual supply curves and the market supply curve?

The relationship between individual supply curves and the market supply curve is that the market supply curve is derived by summing all the individual supply curves of the suppliers in the market. Each supplier has its own supply curve, which shows the quantity of goods they are willing to supply at different price levels. By aggregating these individual supply curves, we obtain the market supply curve, which represents the total quantity of goods available in the market at various prices. This aggregation helps in understanding the overall market dynamics and the total market availability of goods at different price points.

How do you calculate market supply from individual supply curves?

To calculate market supply from individual supply curves, you sum the quantities supplied by each individual supplier at each price level. For example, if Supplier A supplies 2 units at $2 and Supplier B supplies 3 units at $2, the market supply at $2 would be 5 units. This process is repeated for all price levels to construct the market supply curve. The formula can be expressed as:

$Q=\sum _{i=1}^n{q}_i$

where $q_i$ is the quantity supplied by supplier $i$ and $n$ is the total number of suppliers.

What is the law of supply and how does it relate to individual and market supply curves?

The law of supply states that, all else being equal, an increase in the price of a good will result in an increase in the quantity supplied, and a decrease in the price will result in a decrease in the quantity supplied. This relationship is depicted in both individual and market supply curves, which typically slope upwards. For individual suppliers, their supply curve shows the quantity they are willing to supply at different prices. When these individual supply curves are aggregated to form the market supply curve, the upward slope remains, reflecting the law of supply on a market-wide scale.

How do changes in price affect the market supply curve?

Changes in price affect the market supply curve by causing movements along the curve. As the price of a good increases, the quantity supplied by individual suppliers typically increases, leading to a higher total market supply. Conversely, if the price decreases, the quantity supplied by individual suppliers usually decreases, resulting in a lower total market supply. This movement along the supply curve illustrates the law of supply, which states that there is a direct relationship between price and quantity supplied. However, shifts in the supply curve can occur due to factors other than price, such as changes in production costs, technology, or the number of suppliers.

What factors can cause shifts in the market supply curve?

Several factors can cause shifts in the market supply curve, including:

• Production Costs: An increase in production costs can decrease supply, shifting the supply curve to the left, while a decrease in production costs can increase supply, shifting the curve to the right.
• Technology: Advances in technology can make production more efficient, increasing supply and shifting the supply curve to the right.
• Number of Suppliers: An increase in the number of suppliers in the market can increase supply, shifting the supply curve to the right, while a decrease in the number of suppliers can decrease supply, shifting the curve to the left.
• Government Policies: Taxes, subsidies, and regulations can affect production costs and supply, causing shifts in the supply curve.
• Expectations: If suppliers expect higher future prices, they may reduce current supply, shifting the supply curve to the left, and vice versa.