[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

PRICE ($)
5.00
4.00
3.00
2.00
1.50
1.25
1.00
0.75
0.50
Price
$ 5.00
$ 3.00
$ 2.00
$ 1.50
$ 1.25
$ 1.00
$ 0.75
$ 0.50
A
Total market
supply
(millions)
82
80
70
59
47
34
20
5
Market
supply
curve
Figure 3.9
THE MARKET SUPPLY CURVE
0 10 20 30 40 50 60 70 80 90 100
QUANTITY OF CANDY BARS (MILLIONS)
The market supply curve shows the quantity of a good all firms in the market are willing
to supply at each price. The market supply curve is normally upward sloping, both
because each firm is willing to supply more of the good at a higher price and because
higher prices entice new firms to produce.
MARKET SUPPLY
The market supply of a good is the total quantity that all the firms in the economy
are willing to supply at a given price. Similarly, the market supply of labor is the
total quantity of labor that all the households in the economy are willing to supply
at a given wage. Figure 3.9 tells us, for instance, that at a price of $2.00, firms will
supply 70 million candy bars, while at a price of $0.50, they will supply only 5 million.
Figure 3.9 also shows the same information graphically. The curve joining the
points in the figure is the market supply curve. The market supply curve gives the
total quantity of a good that firms are willing to produce at each price. Thus, we
read point A on the market supply curve as showing that at a price of $0.75, the firms
in the economy would like to sell 20 million candy bars.
As the price of candy bars increases, the quantity supplied increases, other
things being equal. The market supply curve slopes upward from left to right for
two reasons: at higher prices, each firm in the market is willing to produce more;
and at higher prices, more firms are willing to enter the market to produce
the good.
The market supply curve is calculated from the supply curves of the different
firms in the same way that the market demand curve is calculated from the demand
curves of the different households: at each price, we add horizontally the quantities
that each of the firms is willing to produce.
64 ∂ CHAPTER 3 DEMAND, SUPPLY, AND PRICE