Definition
Market Supply
The sum of the supplies of all individual firms within a market for the good.
- Individual supply only focuses on the production of one firm.
- Market supply focuses on all firms in the same market or industry.
- 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):
- There are two individual demand curves:
- Individual Firm 1 ($S_1$)
- Individual Firm 2 ($S_2$)
- When their individual supplies are added up, we get the market supply ($S_m$).
- There are two individual demand curves:
Why is the market supply curve also upward-slopping?
In subtopic 2.2.1, we say that for an individual firm:
- Higher prices imply higher revenues.
- This incentivises the firm increase their quantity supplied.
- Therefore, the higher the price, the higher the quantity of a good or service a firm is willing and able to produce.
Now, when looking at the market supply (supply of multiple firms in the same market):
- Higher prices attract new firms to join the market as they can increase their revenues or profits.
- This leads to more quantity being supplied in the market.
- Therefore, the higher the price, the higher the number of firms in the market, and therefore, the higher the quantity of a good or service in the market.
The market supply still showcases the positive relationship imposed by the law of supply through its upward-sloping curve.
