[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

PRICE ($)
1.50
0.75
Roger’s
demand
curve
PRICE ($)
1.50
0.75
Jane’s
demand
curve
PRICE ($)
1.50
0.75
Market
demand
curve
0
2 4 6 8 10 12
0
2 4 6 8 10 12 14
0
2 4 6 8 10 12 14 16 18 20 22 24
QUANTITY OF CANDY BARS
QUANTITY OF CANDY BARS
QUANTITY OF CANDY BARS
Figure 3.2
DERIVING THE MARKET
DEMAND CURVE
The market demand curve is constructed by adding up, at each price, the total of the
quantities consumed by each individual. The curve here shows what market demand
would be if there were only two consumers. Actual market demand, as depicted in
Figure 3.3, is much larger because there are many consumers.
PRICE ($)
5.00
4.00
3.00
2.00
1.50
1.00
0.75
0.50
Market
demand
curve
A
Price
$ 5.00
$ 3.00
$ 2.00
$ 1.50
$ 1.25
$ 1.00
$ 0.75
$ 0.50
0 4 8 12 16 20 24 28 32
QUANTITY OF CANDY BARS (MILLIONS)
Figure 3.3
THE MARKET DEMAND CURVE
B
bars; it gives the total quantity of candy bars demanded by everybody in the economy
at various prices. If we had a table like the one in Figure 3.1 for each person in
the economy, we would construct Figure 3.3 by adding up, at each price, the total
quantity of candy bars purchased. Figure 3.3 tells us, for instance, that at a price of
$3.00 per candy bar, the total market demand for candy bars is 1 million candy
bars, and that lowering the price to $2.00 increases market demand to 3 million
candy bars.
Figure 3.3 also depicts the same information in a graph. As in
Quantity demanded
(millions)
0
1
3
4
8
13
20
30
The market demand curve shows the quantity of the good
demanded by all consumers in the market at each price.
The market demand curve is downward sloping, for two
reasons: at a higher price, each consumer buys less, and at
high-enough prices, some consumers decide not to buy
at all—they exit the market.
Figure 3.1, price lies along the vertical axis, but now the horizontal
axis measures the quantity demanded by everyone in the economy.
Joining the points in the figure together, we get the market
demand curve. If we want to know what the total demand for candy
bars will be when the price is $1.50 per candy bar, we look on the
vertical axis at the price $1.50, find the corresponding point A along
the demand curve, and read down to the horizontal axis; at that
price, total demand is 4 million candy bars. If we want to know
what the price of candy bars will be when the demand equals 20 million,
we find 20 million along the horizontal axis, look up to find
the corresponding point B along the market demand curve, and
read across to the vertical axis; the price at which 20 million candy
bars are demanded is $0.75.
Notice that just as when the price of candy bars increases, the
individual’s demand decreases, so too when the price of candy
bars increases, market demand decreases. At successively higher
prices, more and more individuals exit the market. Thus, the
market demand curve also slopes downward from left to right.
This general rule holds both because each individual’s demand
curve is downward sloping and because as the price is increased,
some individuals will decide to stop buying altogether. In Figure
3.1, for example, Roger exits the market—consumes a quantity of
zero—at the price of $5.00, at which his demand curve hits the
vertical axis.
56 ∂ CHAPTER 3 DEMAND, SUPPLY, AND PRICE