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Pindyck - Market Demand (Chapter 4.3)

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4.3 MARKET DEMAND

Market demand curve is curve relating the quantity of a good that all consumers in a market will buy to its price.

From Individual to Market Demand Table 4.2 | Determining the Market Demand Curve | (1) Price ($) | (2) Individual A (Units) | (3) Individual B (Units) | (4) Individual C (Units) | (5) Market (Units) | 1 | 6 | 10 | 16 | 32 | 2 | 4 | 8 | 13 | 25 | 3 | 2 | 6 | 10 | 18 | 4 | 0 | 4 | 7 | 11 | 5 | 0 | 2 | 4 | 6 |
5
4
3
2 Market Demand A B C
0 5 10 15 20 25 30
Summing To Obtain a Market Demand Curve
The market demand curve is obtained by summing our three consumers’ demand curves DA, DB, and DC. At each price, the quantity of coffee demanded by the market is the sum of the quantities demanded by each consumer. At a price of $4, for example, the quantity demanded by the market (11 units) is the sum of the quantity demanded by A (no units), B (4 units), and C (7 units).
Two points should be noted:
1. The market demand curve will shift to the right as more consumers enter the market.
2. Factors that influence the demands of many consumers will also affect market demand.
The aggregation of individual demands in to market becomes important in practice when market demands are built up from the demands of different demographic groups or from consumers located in different areas.
Elasticity of Demand
Denoting the quantity of a good by Q and its price by P, the price elasticity of demand is:

Inelastic Demand
When demand is inelastic, the quantity demanded is relatively unresponsive to changes in price. As a result, total expenditure on the product increases when the price increases.
Elastic Demand
When demand is elastic, total expenditure on the product decreases as the price goes up.
Isoelastic Demand
Demand curve with a constant price elasticity.

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