Market Supply: What does horizontal summation mean?

Transcript:

1 Same with how we derive the market demand,
we can add up all the individual supply curves
and get the market supply.

2 Suppose in our market,
there’s only 2 producers—John and Tom.
3 These are their supply schedules for cakes.
Add up the cakes at every price, (pause 1s)
And this is our market supply schedule.

JINGLE

4 How do these tables look like in graphs?
Let’s graph John’s supply curve first.
At $2, John supplies 10 cakes.
At $4, 20 cakes.
At $6, 30 cakes.
Well, John’s supply curve.

And this is Tom’s supply curve.
(cut)

4 Let’s do a horizontal summation
At $2, the total cakes supplied is 10 (3s) + 20 (3s) = 30.
At $4, it’s 20 (3s) + 30 (3s) = 50 cakes.
At $6, it’s 30 (3s) + 40 (3s) = 70 cakes.
So there you go.
The market supply curve.

Since the market supply is made up of individual supply curves,
When individual supply curve shifts, the market supply curve shifts.
Suppose technology improves,
Both John and Tom increase their supply of cakes,
their supply curves shift right.
(cut)
The market supply curve shifts right too.

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Next up: Market Equilibrium

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When many producers come together to supply a good, we call it a market. How does a market supply curve look like?

How do we translate a supply schedule into a supply curve? How do we add up individual supply curves to get the market supply curve? What is horizontal summation? When individual supply curves shift, how do they affect the market supply?

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