Introduction to Economics
Supply
Deriving a Market Supply Curve from Individual Supply Curves
Page 1 of 2
In this lesson we’ll move from the individual firm supply curve to the supply curve for the market. And we’ll use the
same procedure we used when we derived the market demand curve. We’ll be adding up the supply quantities of the
individual firms at any given price to find the total market quantity supplied.
Let’s look first at a particular bakery, and now we’ll call this Jim’s Bakery. Jim is willing and able to supply one loaf of
bread per week when the price of bread is 0.40 per loaf. If the price is 0.60 per loaf, Jim is willing and able to supply
two loaves per week, and so forth. The information in this table represents the quantity of bread that Jim is willing and
able to supply at different prices, holding constant the price of inputs, technology, taxes and subsidies, and
expectations about future prices.
Now, let’s look at the supply behavior of another firm. This is Dan’s firm. Dan is willing and able to supply two loaves
of bread per week when the price of bread is 0.40 per loaf. He’s willing and able to supply three loaves of bread at a
price of 0.60 per loaf, and so forth. As the price of bread increases, the quantity supplied from Dan’s bakery
increases.
Suppose that Dan and Jim have the only bakeries in town. What does the market supply curve for bread look like?
The market supply curve for bread will be the sum of the individual supply curves of Dan’s firm and Jim’s firm. At any
given price, to find the market quantity supplied, simply add the quantity supplied by Dan’s firm to the quantity
supplied by Jim’s firm. For instance, at a price of $1.50 per loaf, Dan’s firm supplies five loaves of bread per week.
Jim’s firm supplies four loaves of bread. The market quantity supplied, in that case, will be 5 + 4, or 9 loaves of bread
each week. You can do the same for any given price. Find the quantity that Dan’s firm is willing and able to sell, add it
to the quantity that Jim’s firm is willing and able to sell at the same price, and that gives you the market quantity
supplied. Now, we can put Dan and Jim’s information together and wind up with the market supply schedule for
bread. At any given price this table tells you the quantity supplied by Dan plus Jim’s Bakery.
The next step in this lecture is to move this information over to the board and represent it in diagrams. Here is the
supply curve for Dan’s firm. I took the numbers from Dan’s table and I put dots in this diagram to represent the
price/quantity combinations that describe the relationship for Dan’s Bakery. At a price of 0.40 per loaf we get two
loaves a week from Dan; at a price of 0.60 per loaf we get three loaves, and so forth. Now, we know that these are
not the only possible price/quantity combinations. Price and quantity can both vary continuously. So I can connect
the dots and get Dan’s supply curve for bread. I’ll call that Sd. The same thing with Jim’s information - I’ll move it from
the table into the diagram by plotting the combinations of price and quantity that describe the behavior of Jim’s
Bakery. And if I connect the dots, I get Jim’s supply curve for bread. If I want the market supply curve I have to add
together these two individual supply curves, and just like I did before, I’ll be using horizontal summation. I will pick a
particular price, take the quantity that I get from Dan, add it to the quantity that I get from Jim, and that will give me the
market quantity supplied at that price.
Let’s start by choosing a price of 0.40 per loaf. At a price of 0.40 per loaf we get two loaves from Dan and one loaf
from Jim. Add Dan’s two loaves to Jim’s one loaf and that gives us a total market quantity supplied of three loaves at
a price of 0.40 per loaf. So I put a dot here in the market supply curve with a quantity of three and a price of 0.40.
That’s the same thing if I took a ruler and I added two loaves from Dan’s Bakery to one loaf from Jim’s Bakery, and
that gave me a total of three loaves, and I graphed it right here in this diagram, three loaves in the market a price of
0.40 per loaf. I could do the same for any price on the axis. Let’s say a price of 0.60 per loaf. In that case I get three
loaves from Dan, add that to two loaves from Jim, for a total of five loaves supplied when the price is 0.60 per loaf.
Keep picking any price you want and add the quantity from Dan’s firm to the quantity from Jim’s firm to get a total
quantity supplied in the market.
Alternatively, you can just go back to the table representing quantity supplied, that table that we got when we added
Dan’s output to Jim’s output, and you can graph the numbers directly. At a price of $1.00 per loaf we get a quantity
supplied of seven. At a price of $1.50 per loaf we get a quantity supplied of nine. At a price of $2.10 a loaf we get a
total of 11 loaves supplied. At a price of $2.50 per loaf, the quantity supplied is up to 13 loaves per week. There’s the
Introduction to Economics
Supply
Deriving a Market Supply Curve from Individual Supply Curves
Page 2 of 2
market supply curve. I can connect the dots and label this with an S to indicate that this is the supply curve for the
whole market. The supply curve is the horizontal summation of the supply curves of the individual firms in the market.
To get this curve, pick a price and add the quantity from Dan’s Bakery to the quantity from Jim’s Bakery at that price to
get the quantity for the market as a whole.
Now, what’s going to shift the market supply curve? The answer is, anything that shifts the individual supply curve will
shift the market supply curve. After all, the market supply curve is simply the sum of the individual curves, so anything
that moves Dan’s curve or Jim’s curve will shift the market supply curve as well. And what are those factors? They
are all of the factors that we held constant when we originally drew the individual firm’s supply curves - the price of
inputs, technology, taxes and subsidies, and expectations about future prices. If any of those factors changes, we
have to re-draw the individual firm’s curves, and consequently we have to shift the market supply curve as well.
Now, this wraps up our introduction to the behavior of suppliers and the behavior of buyers. Now we’re ready to put
the two sides of the market together and find the conditions under which we have a stable situation. In the next
lecture, we’ll be putting supply and demand together in one diagram to find the equilibrium price and quantity traded.