Understanding the relationship between individual demand curves and the market demand curve is essential in economics. Each consumer has their own individual demand curve, which illustrates how many units of a good they would purchase at various price points. For instance, if the price of cereal is $5, an individual will have a specific quantity they are willing to buy at that price, as well as at other prices like $4.
To derive the market demand curve, one must aggregate the individual demand curves of all consumers in the market. This means summing the quantities demanded by each individual at each price level. For example, in a simplified market for Supreme Pizzas with two consumers, Fat Albert and Skinny Hendrix, we can calculate the market demand at different prices. At a price of $2, if Fat Albert wants 16 pizzas and Skinny Hendrix wants 4, the total market demand is 20 pizzas. This process continues for other price points, demonstrating the law of demand, which states that as prices increase, the quantity demanded generally decreases.
Graphing these demand curves involves plotting the individual demands first. For Fat Albert, at a price of $2, he demands 16 pizzas, and at $4, he demands 12. Similarly, Skinny Hendrix's demand can be plotted, showing his unique demand curve. Each individual's demand curve will differ based on their preferences and willingness to pay.
Once the individual demand curves are established, the market demand curve can be created by summing the quantities demanded at each price. For instance, at a price of $4, if Fat Albert demands 12 pizzas and Skinny Hendrix demands 3, the market demand becomes 15 pizzas. This method can be extended to larger markets with many consumers, where the total market demand reflects the collective preferences of all individuals.
In summary, to find the market demand, simply sum the individual demand curves at various price points. This approach not only illustrates the concept of demand but also reinforces the fundamental economic principle that demand decreases as price increases.
