Overview
This lecture explains how individual supply schedules combine to form the market supply curve, introduces the supply curve equation, and defines producer surplus.
From Individual Supply to Market Supply
- The market supply schedule is found by adding quantities supplied by all firms at each price point.
- Example: If Antonio, Blanca, and Carmen supply 350, 1000, and 2000 pizzas respectively at $1, the market supply is 3350 at that price.
- A graph is created with price on the y-axis and quantity on the x-axis to show the market supply curve.
Market Supply Curve and Its Equation
- The market supply curve can be represented with a linear equation, e.g., Q = 100P.
- When price (P) is zero, quantity supplied (Q) is zero; as price increases, so does quantity supplied.
- This straight line shows the positive relationship between price and quantity supplied.
Interpretation of the Market Supply Curve
- The market supply curve shows the minimum price at which producers are willing to sell each quantity (willingness to sell).
- Under the assumption that firms are price takers, the supply curve is also the marginal cost curve, showing the lowest price producers accept for each unit.
- At a given price, the supply curve shows the maximum quantity the market supplies, including both producers willing to sell for less and those just willing at that price.
Producer Surplus
- Producer surplus is the difference between what a producer is willing to accept and the actual market price.
- Example: If a producer is willing to sell at $3 but sells at $5, the producer surplus is $2 per unit.
- Producer surplus is an important concept for market analysis discussed further in later lessons.
Key Terms & Definitions
- Market Supply — The total quantity offered at each price by all producers in a market.
- Supply Curve — A graph showing the relationship between price and quantity supplied.
- Marginal Cost Curve — A curve indicating the minimum price producers accept for each unit; for price takers, this is the supply curve.
- Producer Surplus — The benefit producers receive when the market price exceeds their minimum acceptable price.
Action Items / Next Steps
- Review how to construct market supply curves from individual supply schedules.
- Understand and practice interpreting supply curve equations (e.g., Q = 100P).