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2.2.3 Individual producer’s supply and market supply

Definition

Market Supply

The sum of the supplies of all individual firms within a market for the good.

  1. Individual supply only focuses on the production of one firm.
  2. Market supply focuses on all firms in the same market or industry.
Figure 1: individual firms' supplies form the market supply
Figure 1: individual firms' supplies form the market supply
  1. In Figure 1, it can be seen how the market supply is obtained from the addition of individual supplies (for a market of two firms):
    1. There are two individual demand curves:
      1. Individual Firm 1 ($S_1$)
      2. Individual Firm 2 ($S_2$)
    2. When their individual supplies are added up, we get the market supply ($S_m$).

Why is the market supply curve also upward-slopping?

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What happens to quantity supplied when prices increase for an individual firm?

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Note

Every product in a market has two types of supply: one from each individual producer, and one from all producers combined. This is similar to how a single student contributes to a class's average grade.

  • Individual supply refers to the quantity of a good that a single producer is willing and able to sell at different prices.
  • Market supply is the total quantity that all producers in a market are willing and able to sell at different prices.

Definition
Market Supply
The sum of the supplies of all individual firms within a market for the good.

Analogy

Think of individual supply as a single musician's contribution to a symphony, while market supply is the entire orchestra playing together.