DERIVATION OF MARKET DEMAND CURVE

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DERIVATION OF MARKET DEMAND CURVE

We have derived above the annulled curve  a single consumer. But for price determination it is the market demand curve which is relevant. The market demand curve for a commodity is obtained by adding together the demands of all consumers who plan to buy it. The way in which this summation is effected is illustrated in (c) show the demand of three separate and independent consumers. We get the market demand curve by adding together the quantities that each consumer wishes to buy at each price. Thus. at the price, the consumer A’s demand is a” U’s “Sand C’s C,. The total quantity of the commodity that all consumers demand at the price is, therefore. a plus II plus c and this quantity is plotted against P,. In the  same fashion. we can discover the quantity demanded by all the three consumers at any other price. When all the points like Q arc joined together, we get a market demand curve for the commodity. In our analysis, we have supposed that there arc three consumers in the market. But the method will apply to any number of consumers.

The market demand curve will slope downwards to the right as individual demand curves  downwards to the Right. It is very rarely that market demand curve will slope upwards from left to right. A good may be a Geffen good for a single consumer, hut it is seldom that any good will be a Giffen good for all consumers. And even if it is. it is unlikely that it will which is psychological in nature, lies at the bottom us law of demand. It is based in introspective. The indifference curve technique, too, is based on introduction. Thus, goth approaches.

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DERIVATION OF MARKET DEMAND CURVE