CB2400 Chap.2 Demand Curves and Market Demand
Demand Curves and Market Demand
Demand is willingness plus ability
A demand schedule records how much a buyer is willing and able to purchase at each own price while other determinants remain fixed. Income, preferences, expectations and related-good prices still matter, but ceteris paribus keeps them fixed when the curve is drawn.
The downward slope reflects substitution toward a good when it becomes relatively cheaper and the increase in purchasing power created by the price fall.
Movement and shift use different nouns
A change in the good's own price produces a movement along the existing demand curve and is called a change in quantity demanded. A change in another determinant shifts the whole curve and is called a change in demand.
Income shifts demand right for a normal good and left for an inferior good. A rise in a substitute's price shifts demand right, while a rise in a complement's price shifts it left.
Market demand adds quantities
At one common price, add the quantities demanded by every buyer. This horizontal summation produces the market curve.
If a price lies above a buyer group's choke price, its contribution is zero rather than negative, so a complete market function can be piecewise. The curve can also be read as marginal willingness to pay: at each quantity, it shows the maximum price accepted for that additional unit.
What this chapter covers
- 01
demand function and determinants
- 02
law of demand
- 03
ceteris paribus
- 04
movement along demand
- 05
right and left shifts
- 06
horizontal market aggregation
Worked example · free
Aggregate two groups at one price
- 2Evaluate each individual function at the common price.
- 3Multiply by the number of buyers in each group.
- 2Add quantities and state the aggregation rule.
Key terms
- Demand Function
- A relationship between quantity demanded and its price and non-price determinants.
- Ceteris Paribus
- The condition that other demand determinants remain fixed while own price changes.
- Normal Good
- A good for which demand rises when income rises.
- Inferior Good
- A good for which demand falls when income rises over the observed range.
- Market Demand
- The horizontal sum of individual quantities demanded at each price.
Demand Curves and Market Demand FAQ
What is the difference between demand and quantity demanded?
Demand refers to the entire relationship between price and planned purchases, shown by a curve. Quantity demanded is the selected amount at one own price. A change in own price moves the point along the curve; a change in income, preferences, expectations or a related-good price shifts the curve.
How do substitute and complement prices affect demand?
When the price of a substitute rises, buyers switch toward the studied good and its demand shifts right. When the price of a complement rises, use of the pair becomes more expensive and demand for the studied good shifts left. Neither event is an own-price movement on the studied curve.
Why is market demand a horizontal sum?
Every buyer faces the same market price, so the quantities each buyer chooses at that price are added. Adding prices would ask how much different buyers are willing to pay for one shared unit and would not measure the total quantity planned for purchase in the market.
Exam move
Take six short scenarios and underline the variable that changed. If it is the studied good's own price, write movement and quantity demanded. If it is any other determinant, write shift and demand, then choose the direction. Finish by aggregating two linear individual functions and checking that all group quantities remain non-negative in the range used.
Use separate colours for the original curve and the changed curve, and mark one price common to both. At that price, a rightward shift must display a larger demanded quantity. For related goods, state whether the other product is a substitute or complement before choosing the direction. For income, classify the good as normal or inferior from the information supplied rather than assuming normality.
When an equation is given, identify its choke price and the interval in which predicted quantity is non-negative. Horizontal aggregation means adding quantities at one price, so solve each consumer's participation condition before combining expressions. A buyer whose formula would predict a negative quantity contributes zero instead.
Check an inverse demand equation by solving it back into direct form; the two versions should select the same price-quantity pairs. Complete each drill with one sentence using precise vocabulary: an own-price change alters quantity demanded along a fixed demand curve, while a non-price determinant changes demand and shifts the entire curve.
Add a counterexample for each determinant so the chosen direction follows the stated relationship rather than an automatic rule detached from the scenario.
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