Individual & Market Supply (Cambridge (CIE) IGCSE Economics): Revision Note

Defining supply

• Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period

• The law of supply states that there is a positive (direct) relationship between quantity supplied and price, ceteris paribus

  • When the price rises, the quantity supplied rises

  • When the price falls, the quantity supplied falls

Individual and market supply

• Market supply is the combination of all the individual supply for a good/service

  • It is calculated by adding up the individual supply at each price level 

The monthly market supply of bread from 4 bakeries in a small town

Drawing and interpreting a supply diagram

• A supply curve is a graphical representation of the price and quantity supplied by producers

  • If data were plotted, it would be an actual curve

  • Economists, however, use straight lines to make analysis easier 

• The supply curve is sloping upward, as there is a positive relationship between the price and quantity supplied

  • Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits 

• Individual and market supply can also be represented graphically
   

  

Diagram analysis

• In New York City, the market supply for smartphones in December is predominantly the combination of iPhone and Samsung supply

• At a price of $1000, the supply of iPhones is 300 units and the supply of Samsung phones is 320 units

• At a price of $1,000, the market supply of smartphones in New York City during December is 620 units