Which of the following statements about the market supply curve is true?

• A. The market supply curve shows the relationship between price and quantity demanded.
• B. The market supply curve shifts left when input prices decrease.
• C. The market supply curve is obtained by horizontally summing the individual supply curves of all producers.
• D. The market supply curve always slopes downward due to diminishing marginal returns.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what the market supply curve represents. It shows the relationship between the price of a good and the total quantity that all producers in the market are willing to supply at each price level.
2. Step 2: Recall that the market supply curve is derived by horizontally summing the individual supply curves of all producers. This means adding the quantities supplied by each producer at every price to get the total market quantity supplied.
3. Step 3: Recognize that the market supply curve relates price to quantity supplied, not quantity demanded. The demand curve, not the supply curve, shows the relationship between price and quantity demanded.
4. Step 4: Understand how input prices affect supply. When input prices decrease, production becomes cheaper, so producers are willing to supply more at each price, causing the supply curve to shift to the right, not left.
5. Step 5: Remember that the supply curve typically slopes upward, reflecting that higher prices incentivize producers to supply more. The statement about the supply curve always sloping downward is incorrect; downward slopes are characteristic of demand curves, not supply curves.