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The counterpart to the market demand curve is the market supply curve, which is obtained by adding together the individual supply curves in the economy. The supply curve slopes upward: as price increases, the quantity supplied to the market increases. As with demand, there are two underlying effects.
- As price increases, more firms decide to enter the market—that is, these firms produce some positive quantity rather than zero.
- As price increases, firms increase the quantity that they wish to produce.
Figure 4.3 Figure 4.3 The Market Supply of Houses
The market supply curve shows the quantity of houses supplied at each price. It has a positive slope: as the price of houses increases, the number of houses supplied to the market increases
as well.
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