Link between individual demand and market demand
📚 The Allocation of Resources – Demand
In economics, demand shows how much of a good people want to buy at different prices. Understanding demand is key to predicting how resources are allocated in the market.
👤 Individual Demand
Individual demand is the relationship between the price of a good and the quantity that a single consumer wants to buy.
- 📈 The law of demand says that, all else equal, as price falls, quantity demanded increases, and vice‑versa.
- It is usually represented by a downward‑sloping curve.
- Example: A student wants to buy a pack of gum. If the price drops from £1.00 to £0.50, the student might buy 2 packs instead of 1.
Mathematically, an individual demand function can be written as:
$Q_d = a - bP$
where Q_d is quantity demanded, P is price, a is the intercept (maximum quantity when price is zero), and b is the slope.
🛒 Market Demand
Market demand is the total quantity that all consumers in a market want to buy at each price.
- It is obtained by adding up all individual demand curves horizontally.
- Because more people are buying, the market demand curve is usually flatter than an individual curve.
- Example: In a school, if 10 students each want 1 pack of gum at £1.00, the market demand is 10 packs.
🔗 Linking Individual to Market Demand
To link the two, imagine each student’s demand as a small line on a graph. When you stack them side by side, the combined line shows how many packs the whole school wants at each price.
| Price (£) | Student A | Student B | Student C | Total (Market) |
|---|---|---|---|---|
| 1.00 | 1 | 1 | 1 | 3 |
| 0.75 | 2 | 2 | 1 | 5 |
| 0.50 | 3 | 3 | 2 | 8 |
Notice how the market demand curve (the “Total” column) is steeper because it aggregates all individual preferences.
📌 Examination Tip
When asked to explain the link between individual and market demand, remember:
- Define individual demand and its downward slope.
- Show how adding individual curves horizontally gives market demand.
- Use a simple numerical example or a small table to illustrate the addition.
Practice drawing both curves on a single graph to demonstrate the relationship visually.
📈 Key Takeaways
- Individual demand reflects one consumer’s choices.
- Market demand is the sum of all individual demands.
- Because many people buy, the market demand curve is flatter.
- Understanding this link helps predict how changes in price affect total consumption.
?? Quick Review
- Law of Demand: Price ↑ → Quantity ↓ (and vice‑versa).
- Individual vs Market: Individual curves added horizontally produce the market curve.
- Exam Question Tip: Sketch the curves and label key points; use a table to show numerical addition.
Revision
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