Published by Patrick Mutisya · 14 days ago
In this section we explore how the quantity that a single producer is willing to supply at different prices (individual supply) combines to give the total quantity that all producers in the market are willing to supply at each price (market supply). Understanding this link is essential for analysing how markets respond to changes in price and how resource allocation is determined.
For a single firm, the individual supply curve shows the relationship between the price of the good and the quantity the firm is willing to produce and sell. The law of supply states that, ceteris paribus, a higher price leads to a higher quantity supplied.
Mathematically, an individual supply function can be expressed as:
\$Q_{s} = a + bP\$, where \$a\$ is the intercept (quantity supplied when price is zero) and \$b\$ is the slope (change in quantity supplied per unit change in price).
The market supply curve is obtained by horizontally adding the individual supply curves of all firms in the market. At each price level, the market quantity supplied is the sum of the quantities supplied by all firms.
For two firms, the market supply is:
\$Q{Ms} = Q{s1} + Q_{s2}\$
| Price per unit ($) | Firm A – Quantity supplied (units) | Firm B – Quantity supplied (units) | Market Quantity supplied (units) |
|---|---|---|---|
| 1 | 10 | 5 | 15 |
| 2 | 20 | 10 | 30 |
| 3 | 30 | 15 | 45 |
| 4 | 40 | 20 | 60 |
| 5 | 50 | 25 | 75 |
The market supply curve derived from the table above will slope upward, reflecting the positive relationship between price and quantity supplied.
In general, the market supply function can be written as:
\$Q{Ms} = \sum{i=1}^{n} (ai + bi P) = \left(\sum{i=1}^{n} ai\right) + \left(\sum{i=1}^{n} bi\right) P\$