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 AStudent BStudent CTotal (Market)
1.001113
0.752215
0.503328

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:

  1. Define individual demand and its downward slope.

  2. Show how adding individual curves horizontally gives market demand.

  3. 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.

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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.