The Supply Curve: Videos & Practice Problems

Supply is a fundamental concept in economics that focuses on the behavior of sellers or suppliers in the market. The terms "suppliers," "sellers," and "producers" are often used interchangeably. Just as we discussed quantity demanded (QD), we also have quantity supplied (QS), which refers to the amount of a good that sellers are willing to produce at various price levels.

The relationship between price and quantity supplied is defined by the law of supply, which states that when the price of a good rises, the quantity supplied also rises. This indicates a directly proportional relationship: as price increases, suppliers are more inclined to produce and sell more of the good. Conversely, if the price decreases, the quantity supplied will also decrease. This behavior aligns with the intuitive understanding that higher prices incentivize sellers to enter the market or increase production.

To visualize this relationship, we use a supply curve, which is a graph that illustrates the connection between the price of a good and its quantity supplied. The supply curve typically slopes upward, reflecting the direct relationship between price and quantity supplied. On the graph, the price is represented on the vertical (y) axis, while the quantity supplied is plotted on the horizontal (x) axis. This arrangement follows alphabetical order, making it easier to remember.

For example, consider a supply schedule for wheat, which lists various prices alongside the corresponding quantities supplied. At a high price of $9, the quantity supplied might be 60,000 units, while a decrease in price would lead to a reduction in quantity supplied. When these points are plotted on the graph and connected, they form the upward-sloping supply curve.

In summary, understanding supply involves recognizing how price changes influence the quantity that suppliers are willing to produce, and this relationship is graphically represented by the supply curve, which slopes upward, contrasting with the downward slope of the demand curve.

Understanding the relationship between individual suppliers' supply curves and the overall market supply curve is essential in economics. Each supplier has their own supply curve, which reflects the quantity of goods they are willing to supply at various price levels. To determine the market supply, one simply sums the quantities supplied by all individual suppliers at each price point.

For instance, consider two suppliers, Papa Yum's and Domino's, both selling supreme pizzas. At a price of $2, Papa Yum's supplies 2 pizzas while Domino's supplies none, resulting in a market supply of 2 pizzas. As the price increases to $4, the market supply rises to 6 pizzas, with Papa Yum's supplying 5 and Domino's supplying 1. This trend continues, demonstrating the law of supply, which states that as prices increase, the quantity supplied also increases.

At a price of $6, Papa Yum's supplies 8 pizzas and Domino's supplies 2, leading to a total market supply of 10 pizzas. This pattern continues with market supplies of 14 pizzas at $8 and 18 pizzas at $10. The individual supply curves for each supplier can be graphed, showing how many pizzas each is willing to supply at different prices. For example, Papa Yum's supply curve will show points at various prices, illustrating their increasing supply as prices rise.

Similarly, Domino's supply curve will reflect their supply at different price levels, starting from zero at $2 and gradually increasing to 4 pizzas at $10. By graphing these individual supply curves, one can visualize the market supply curve, which is formed by summing the quantities supplied by both suppliers at each price level.

In summary, to find the market supply, simply add the quantities supplied by each individual supplier at the same price. This approach provides a clear understanding of how much product is available in the market at various price points, reinforcing the fundamental principles of supply in economics.