Market Demand

Market demand is a series of various quantities of a product or service that consumers in a given market are able and willing to purchase collectively at each of a series of potential prices per unit of the product or service, provided other things such as number of consumers, consumer incomes and consumer tastes etc. remain constant.

Market demand is obtained from horizontal summation of the individual demand schedules or demand curves of all the consumers in a given market. When markets are large we take a representative sample of consumers and multiply their average quantities demanded by the total number of consumers in the market to obtain market demand schedule.

Example

Let us assume there are only three consumers in a hypothetical market of product. The following table shows their individual demand schedules as well as the market demand which is obtained by horizontally adding the quantities demanded by individuals at a given price.

Unit PriceIndividual DemandMarket
Demand
AaronDavidSarah
8004444
70165167
64325793
585165124
4137574162
32010486210
230147103280
146220134400

The following chart shows the individual demand curves as well as the market demand curve. The points on individual and market demand curves have same vertical coordinate i.e. price per unit of the product. But the horizontal coordinates of the points on market demand curve are the sums of the horizontal coordinates of the points on individual demand curves i.e. quantities demanded by individual customer.

Market Demand Curve

At any given price different quantities may be demanded by different consumers and the difference in slopes of the individual curves shows that their elasticity of demand may also be different. However a single consumer has insignificant effect on equilibrium in a large market. Therefore we use market demand and market supply curves to determine equilibrium price and quantity.

Written by Irfanullah Jan