The Market Supply Curve: Definition, Principles & Equation

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  • 0:00 What Is The Market…
  • 0:55 Supply Curves And Examples
  • 2:35 Market Supply Curve…
  • 3:23 Lesson Summary
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Lesson Transcript
Instructor: Claretta Pam

Claretta is a doctoral candidate with B.A. degrees in Political Science and Studio Art. She has a Master's in Business Administration.

Learn the purpose of the market supply curve and its underlying principles. Explore the primary focus of market supply curves and how to calculate the supply curves of individual firms.

What is The Market Supply Curve?

Have you ever walked through your neighborhood and wondered, 'Why is there a convenience store and a pizza shop on every corner? There seems to be so many of the same businesses. How can they be turning a profit with all of this competition?' Companies can measure the price at which consumers are willing to pay for a product or service by calculating the supply curve of their business and the market supply curve for the area. Some businesses understand that there are enough customers for everyone. Let's find out how they know.

A market supply curve is the summation of individual firms' supply curves. An important principle for market supply curves is that the market has to be perfectly competitive. This means that there is a large number of players (firms producing the same product) in the market and there is no dominant player that can manipulate prices. To understand market supply curve, we must first understand a supply curve.

Supply Curves and Examples

The supply curve for a firm shows the quantity of product that a firm is willing to produce for a given price of the product, assuming ideal business conditions. This relationship between price and quantity is shown in a graph with two axes, X and Y, where the X-axis represents the quantity of the product and the Y-axis represents the price of the product produced.

This curve is always upward sloping, showing a positive correlation between a product price and the quantity produced by a firm. This means that if the price of a product increases in the market, then a firm will start producing more of that product. This is very logical, as a higher price will mean that the product is more profitable to the firm and hence they will start producing more of it.

Let's look at an example of two different pizza places' supply curve, starting with Missy's.

Supply curve data for Missy's Pizza

Price: Quantity

  • $1: 0
  • $3: 1,000
  • $5: 1,500
  • $7: 2,000
  • $9: 3,000
  • $11: 4,500

missy

Based on the table and graph above, Missy's Pizza will not produce anything if it sells pizzas at $1 because it may not profitable or not profitable enough to sustain the business. However, Missy's Pizza will produce 1,000 pizzas when it can sell them at $3 in the market. It will produce 1,500 pizzas when it can sell them at $5 in the market. It will produce 4,500 pizzas if it can sell them at $11 in the market.

Now let's look at the supply curve for Missy's competitor, Rebecca's Pizza, below.

Supply curve data for Rebecca's Pizza

Price: Quantity

  • $1: 0
  • $3: 0
  • $5: 1,000
  • $7: 1,300
  • $9: 1,800
  • $11: 2,500

rebecca

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