•In a market for a good, there are many consumers.
•The market demand for a good at a particular price is the total demand of all consumers taken together.
•The market demand for a good can be derived from the individual demand curves.
•Suppose there are only two
Market demand for two consumers
•Suppose there are only two consumers in the market for a good.
•Suppose at price p’, the demand of consumer 1 is q1’and that of consumer 2 is q2’.
•Then, the market demand of the good at p’ is q1’ + q2’
•The market demand curve of a good can also be derived from the individual demand curves graphically by adding up the individual demand curves horizontally
Adding up Two Linear Demand Curves
•Assume a market where there are two consumers and the demand curves of the two consumers are given as
•d1(p) = 10 – p
•d2(p) = 15 – p
•Thus
•At any price greater than 10, the consumer 1 demands 0 unit of the good,
•At any price greater than 15, the consumer 2 demands 0 unit of the good.
Market demand curve for two consumers
Price less than or equal to 10
•The market demand can be derived by adding equations
•d1(p) = 10 – p
•d2(p) = 15 – p
•If the price is less than or equal to 10, the market demand is given by 25 – 2p
Price greater than 10, and less than or equal to 15
•The market demand equations are
•d1(p) = 10 – p
•d2(p) = 15 – p
•For any price greater than 10, and less than or equal to 15, market demand is 15 – p,
Price greater than 15
•The market demand equations are
•d1(p) = 10 – p
•d2(p) = 15 – p
•At any price greater than 15, the market demand is 0