Imagine you’re at a pizza party 🍕. The more pizza slices you want, the higher the price you’re willing to pay. The individual demand curve shows how much of a good a single person will buy at each price.
The basic shape is downward‑sloping because as price \$P\$ rises, quantity demanded \$Q_d\$ falls:
\$Q_d = a - bP\$ where \$a,b>0\$.
| Price ($) | Quantity Demanded (units) |
|---|---|
| 10 | 30 |
| 8 | 40 |
| 5 | 50 |
Market demand is the sum of all individual demand curves. Think of a group of friends all wanting the same pizza slices. You add up each friend’s demand at every price to get the total demand.
Mathematically:
\$Q{md} = \sum{i=1}^{n} Q_{di}\$.
| Price ($) | Total Quantity Demanded (units) |
|---|---|
| 10 | 60 |
| 8 | 80 |
| 5 | 100 |
Picture a lemonade stand owner. The higher the price, the more lemonade they’re willing to sell because it covers costs and earns profit. The individual supply curve slopes upward.
Basic form:
\$Q_s = c + dP\$ where \$c,d>0\$.
| Price ($) | Quantity Supplied (units) |
|---|---|
| 10 | 20 |
| 8 | 15 |
| 5 | 10 |
Market supply is the vertical addition of all individual supply curves. Think of many lemonade stands in a town. At each price, add up how much each stand will sell to get the total supply.
Formula:
\$Q{ms} = \sum{i=1}^{n} Q_{si}\$.
| Price ($) | Total Quantity Supplied (units) |
|---|---|
| 10 | 40 |
| 8 | 30 |
| 5 | 20 |
The point where the market demand curve intersects the market supply curve is the equilibrium. At this price, the quantity demanded equals the quantity supplied, so no one wants to change the price.
Solve for equilibrium:
\$Q{md} = Q{ms}\$
→ \$Q^* = \frac{a - c}{d + b}\$
and the equilibrium price is
\$P^* = \frac{a + d\,c}{b + d}\$
| Equilibrium Price ($) | Equilibrium Quantity (units) |
|---|---|
| 7.5 | 55 |