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MARKET DEMAND VERSUS INDIVIDUAL DEMAND

The demand curve in Figure I shows an individual’s demand for a product. To analyze how markets work, we need to determine the market demand, the sum of all the individual demands for a particular good or service.

At any price, Catherine’s demand schedule tells us how much ice cream she buys, and Nicholas’s demand schedule tells us how much ice cream he buys. The market demand at each price is the sum of the two individual demands.

The graph in Figure 2 shows the demand curves that correspond to these demand schedules. Notice that we sum the individual demand curves horizontally to obtain the market demand curve. That is, to find the total quantity demanded at any price, we add the individual quantities found on the horizontal axis of the individual demand curves. Because we are interested in analyzing how markets work, we will work most often with the market demand curve. The market demand curve shows how the total quantity demanded of a good varies as the price of the good varies, while all the other factors that affect how much consumers want to buy are held constant.

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