ECON1001 · Introductory Microeconomics
Demand: Willingness to Pay & Market Demand
Week 2 builds the demand curve from the ground up. A consumer's willingness to pay (WTP) for each unit is its marginal benefit, and because marginal benefit diminishes, the consumer keeps buying until P = MB. That makes the individual demand curve identical to the consumer's MB curve — downward sloping, which is the law of demand. Summing individual demands horizontally gives market demand, and two linear demands produce a characteristic kink. The chapter also nails the shift-versus-movement distinction that examiners love to test.
What this chapter covers
- 01Willingness to pay = marginal benefit = the demand curve
- 02Total benefit vs marginal benefit; diminishing marginal benefit
- 03The optimal-purchase rule: buy until P = MB
- 04Law of demand: the negative price-quantity relationship
- 05Movement along (change in quantity demanded) vs shift (change in demand)
- 06Demand shifters: income, tastes, expectations, prices of related goods
- 07Market demand by horizontal summation of individual MB curves
- 08The kink in market demand and where it sits
Building market demand and locating the kink
- 2 marks · both choke pricesEach consumer's quantity hits zero at their P-axis intercept. A: 9 − 3P = 0 → P = 3. B: 8 − 2P = 0 → P = 4.
- 2 marks · top segmentFor P ≥ 4, neither buys → market Q = 0. For 3 ≤ P < 4, only B buys → Q = 8 − 2P.
- 2 marks · summed segmentFor P < 3, both buy → Q = (9 − 3P) + (8 − 2P) = 17 − 5P (horizontal summation: add quantities, not prices).
- 1 mark · kink priceThe kink occurs where the lower-intercept consumer (A) enters, i.e. at the higher of the two choke prices: P = 3.
Key terms
- Willingness to pay (WTP)
- The maximum price a consumer will pay for a unit, equal to the marginal benefit that unit delivers.
- Marginal benefit (MB)
- The extra benefit from one more unit of a good; it diminishes as quantity rises, generating the downward-sloping demand curve.
- Law of demand
- The negative relationship between a good's price and the quantity demanded, holding other things constant.
- Change in quantity demanded
- A movement along a fixed demand curve caused by the good's own price changing.
- Change in demand
- A shift of the whole demand curve caused by a non-price factor — income, tastes, expectations, or prices of related goods.
- Horizontal summation
- The method of building market demand (or supply) by adding the quantities demanded (or supplied) by each participant at every given price.
Demand: Willingness to Pay & Market Demand FAQ
Why is the demand curve the same as the marginal benefit curve?
Because a rational consumer keeps buying while the benefit of the next unit exceeds its price and stops when P = MB. Plotting the price the consumer is just willing to pay at each quantity traces out exactly the marginal benefit curve.
How do I tell a shift from a movement along the curve?
If the good's own price changes you move along the curve — that is a change in quantity demanded. If anything else changes (income, tastes, expectations, related-good prices) the whole curve shifts — that is a change in demand.
Why does adding two straight-line demands create a kink?
Below the higher choke price only one consumer is in the market, so the curve has that consumer's slope. Once price falls enough for the second consumer to enter, both quantities add together and the curve becomes flatter, producing a kink at the entry price.
Exam move
Anchor everything on the identity demand = marginal benefit; it makes consumer surplus and the optimal-purchase rule fall out for free later. Practise the horizontal-summation drill until you reflexively add quantities at a price rather than prices at a quantity, and always check choke prices first so you know how many segments the market curve has. Keep a clean two-column list of demand shifters versus the own-price movement so you never misclassify a question.
