The law of supply is a basic economic concept that affects all of us. For example, when the price of a product increases, businesses expand their production. This increase in production results in lower prices to consumers and higher profits to the business. The law of supply is so prevalent, in fact, that it’s even visible in your own workplace. If your company pays time and a half for overtime, you are likely to work more hours.

Economists typically plot the supply and demand curves on a graph to observe their relationship. When the supply curve meets the demand curve, this is when the prevailing prices completely satisfy consumer demand. When the supply curve is above or below the demand curve, this is when the resulting prices are either too high or too low for consumer satisfaction.

In a free market economy, when the amount consumers want to buy (quantity demanded) equals the amount producers are willing to sell (quantity supplied), we call this a competitive equilibrium. This is the only price at which both the buyers and sellers are happy.

We can mathematically find this point of equilibrium by constructing the individual supply curves for each firm in the market and adding them together. For example, if Firm 1 wants to sell at any price less than 10, and Firm 2 wants to sell at any price greater than 5, then market supply for these two firms is the horizontal (quantity) sum of their individual supply curves.