The Supply Curve - Online Tutor, Practice Problems & Exam Prep

Supply reflects the behavior of sellers in a market, where the quantity supplied (QS) increases as the price rises, demonstrating the law of supply. A supply curve graphically represents this relationship, sloping upward. Market supply is derived by summing individual suppliers' supply curves, indicating total quantity available at various prices. Understanding these concepts is crucial for analyzing market dynamics, including equilibrium price and the effects of changes in supply on consumer surplus and producer surplus.

The Basics of Supply

Alright, now that we've wrapped up our discussion on demand, let's move on to supply. So I hope you guys see a lot of similarities here between what we were doing in demand and what we're going to be doing here with supply. Supply relates to the behavior of the sellers or the suppliers in our market here. So, the suppliers, I'm going to write them both in here. Suppliers, sellers. We're going to use those terms interchangeably. You might even hear producers as well. Just like we had quantity demanded, we are going to have the quantity supplied being the amount of a good that the sellers are willing to produce, right. So we're going to use QS just like we had the QD, we've got QS here. So at any given price, there's going to be a quantity that will be supplied and the supply schedule is going to list these pairs at different prices, how much quantity will be supplied. So just like we had the law of demand, now we have the law of supply. When the price of a good rises, the quantity supplied of that good rises. So remember with demand, the price went up, the quantity demanded went down. Now they're going to be moving in the same direction. This is going to be a directly proportional relationship, right? Quantity supplied is going to rise with price. So let me write that in here. Price is going to go up, that means the quantity supplied is going to go up. Vice versa, the price goes down, quantity supplied will go down, right? And this kind of makes sense, right? If there's a higher price, more people are going to be willing to sell that product like hey, the price of cereal went up. Maybe we should get into the cereal business, right? I don't know. So the idea here is that they're going to move together. Price and quantity supplied will move in the same direction. So let's finish up our discussion here with the supply curve. Just like we had a demand curve, we are going to have a supply curve as well. So the supply curve is going to be the graph. It is a graph showing the relationship between the price of a good and its quantity supplied. And remember, just like the demand curve was what we call demand, Here, this is supply, right? So we're going to make that distinction between supply and quantity supplied and we're going to just use an S for supply. Just like we use the big D for demand we'll use the big S for supply. So here right behind me, I've got a supply schedule for wheat and we've got different prices and different quantities that will be supplied at those prices. So notice when there's a high price of $9, you're going to see a high quantity of 60,000 and as the price decreases, you're going to see decreases in the quantity supplied as well. So I've already put these points on our graph here and just to reiterate, right, we're going to have the price on the y-axis, quantity on the x-axis right? Alphabetical order is the easy way to remember that. So I'm going to go ahead and connect these dots to make our supply curve. Man, I'm just missing right now. Okay. So here we go. One more. One more. That's the one. Alright. So that will be our supply curve right there. Cool? And notice that the supply curve here I am again, hi alright notice that the supply curve slopes upward and remember my little mnemonic before the double d's demand downward and supply, well that's just the other one. If you remember demand is downward, supply is upward. Cool? Alright. Let's go ahead and move on to the next video.

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 2 suppliers, Papa Yums and Dominopes, making supreme pizzas. 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 2, so it should be pretty easy. Let's start with a price of $2. 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 the market supply come 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, who 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 between 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. Alright. 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, that is my supply curve. You know what, I want to make it red. So in the end, I'm just going to drop myself. 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? P and Q. 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 Domino's. 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. 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, with price being our Y-axis here, and quantity being on our X-axis. At a price of $4, we're going to supply 6. Price of $6, we will supply 10. For 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 and 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'll 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 law of supply and how does it relate to the supply curve?

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 directly proportional. The supply curve graphically represents this relationship, typically sloping upward from left to right. This upward slope indicates that as the price of a good rises, suppliers are willing to produce and sell more of it. Conversely, if the price falls, the quantity supplied decreases. Understanding this concept is crucial for analyzing market dynamics and predicting how changes in price can affect the overall market supply.

How do you derive the market supply curve from individual supply curves?

To derive the market supply curve, you sum the individual supply curves of all suppliers in the market. Each individual supply curve shows the quantity of a good that a single supplier is willing to produce at various prices. By adding these quantities at each price level, you obtain the total quantity supplied by the market at those prices. For example, if Supplier A supplies 5 units at $10 and Supplier B supplies 3 units at $10, the market supply at $10 is 8 units. This process is repeated for all price levels to construct the market supply curve, which shows the total quantity available in the market at different prices.

What factors can cause a shift in the supply curve?

Several factors can cause the supply curve to shift. These include changes in production costs (e.g., labor, raw materials), technological advancements, taxes and subsidies, prices of related goods, expectations of future prices, and the number of sellers in the market. For instance, a decrease in production costs or an improvement in technology can shift the supply curve to the right, indicating an increase in supply. Conversely, higher taxes or increased costs of raw materials can shift the supply curve to the left, indicating a decrease in supply. These shifts reflect changes in the quantity supplied at every price level.

What is the difference between a movement along the supply curve and a shift in the supply curve?

A movement along the supply curve occurs when there is a change in the quantity supplied due to a change in the price of the good. This is represented by a movement from one point to another on the same supply curve. In contrast, a shift in the supply curve happens when a non-price factor (e.g., production costs, technology, taxes) changes, affecting the overall supply. A shift to the right indicates an increase in supply, while a shift to the left indicates a decrease in supply. These shifts mean that at every price level, the quantity supplied has changed.

How does the supply curve help in determining the equilibrium price in a market?

The supply curve, when combined with the demand curve, helps determine the equilibrium price in a market. The equilibrium price is the price at which the quantity supplied equals the quantity demanded. On a graph, this is the point where the supply curve intersects the demand curve. At this price, the market is in balance, and there is no excess supply or shortage. Understanding the supply curve is essential for predicting how changes in supply or demand can affect the equilibrium price and quantity in the market.