The term ‘supply’ means the willingness and ability of suppliers/sellers or people to supply goods and services. The quantity supplied of any good or service is the actual quantity offered for sale in the market by the sellers. Let us look at the example of a carpentry. When the price of chairs is high, it is more profitable to sell chairs and therefore produce more of it, and thus the quantity supplied of chairs is higher. The carpentry may work longer hours and may buy new machinery, and dedicate more time for making chairs rather than other furniture. However, when the price of chairs is low, the carpentry will produce less, since it is less profitable to sell chairs. At a low price the carpentry may even stop making chairs altogether, and their quantity supplied will fall to zero. This direct relationship between price and quantity supplied is called the law of supply: When the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls too, ceteris paribus.
Individual supply and the market supply
Market supply is the sum of the supplies of all sellers. Let us look at an example of a market where there are only two ice-cream producers, Farish and Saeed. The table below shows the supply schedules for the two ice-cream producers. At any price, Farish’s supply schedule tells us the quantity of ice cream that Farish supplies, and Saeed’s supply schedule tells us the quantity of ice cream that Saeed supplies. The market supply is the sum of the two individual supplies.
|Price of ice-cream||Farish||Saeed||Market|
The graph below shows the supply curves that correspond to the above supply schedules.
We sum the individual supply curves horizontally to obtain the market supply curve. That is, to find the total quantity supplied at any price, we add the individual quantities, which are found on the horizontal axis of the individual supply curves. The market supply curve shows how the total quantity supplied varies as the price of the good varies, holding constant all the other factors beyond price that influence producers’ decisions about how much to sell.