What Is the Relationship Between the Individual Demand Curves & the Market Demand Curve for Goods?
In economics, the market demand curve is the compilation of the individual demand curves of market participants. The individual demand curve represents the demand each consumer has for a particular product, and the market demand curve shows the cumulative relationship between consumers in general and the product.
Demand curves are a representation of how much of a particular good consumers want, based on the good's price. For normal goods, consumers want to purchase more of a good when the price is low, and less when the price is high. Demand curves are plotted on a graph with quantity on the horizontal axis and price on the vertical, and the relationship between price and quantity gives the curve a downward slope.
Each consumer has a particular amount of a good that they are willing to purchase at every possible price for that good. For example, John will happily buy three pizzas if they are $5 each, but when the price increases to $8 each, John only wants two pizzas. The increase in price is associated with a lower quantity that John is willing to buy.
The market demand curve results from taking all the demand curves for the consumers in the market for a particular good and adding them up horizontally. To continue the example above, if ten consumers just like John constituted the whole pizza market in a particular town, the market demand curve would show a quantity demanded of 30 pizzas when the price is $5 each and a quantity demanded of 20 pizzas when the price is $8.
From a small business perspective, demand curves offer some important reminders about consumer behavior. First, the obvious -- consumers generally want to purchase more of a good as its price declines. The idea of market demand curves also shows that every market is made up of individuals, who may have their own preferences and demand curves. By pricing goods to appeal to many consumers, a business can sell its product. Some consumers will value it more than others, but every consumer will have a price that they cannot resist.