The Market Demand Curve: Definition, Equation & Examples

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  • 0:00 Market Demand Curve Definition
  • 0:49 Equation
  • 1:26 Examples of Market…
  • 3:01 Lesson Summary
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Lesson Transcript
Instructor
Kallie Wells
Expert Contributor
Joseph Shinn

Joe has a PhD in Economics from Temple University and has been teaching college-level courses for 10 years.

What is the market demand curve, and how is it derived? This lesson will explain the concept of a market demand curve and show you how one would go about creating the curve.

Market Demand Curve Definition

The market demand curve is the summation of all the individual demand curves in a given market. It shows the quantity demanded of the good by all individuals at varying price points. For example, at $10/latte, the quantity demanded by everyone in the market is 150 lattes per day. At $4/latte, the quantity demanded by everyone in the market is 1,000 lattes per day. The market demand curve gives the quantity demanded by everyone in the market for every price point. The market demand curve is typically graphed and downward sloping because as price increases, the quantity demanded decreases. It can also be provided as a schedule, which is in table format.

Equation

To determine the market demand curve of a given good, you have to sum all the individual demand curves for the good in the market. Here is the algebraic equation for market demand. The quantity demanded (Q) is a function of price (P), and it is summing all the individual demand curves (q), which are also a function of price. The subscripts one through n represent all the individuals in the market.

Market Demand

Examples of Market Demand Curves

To make things easy, let's assume we have two people in the market for lattes (we all know this is extremely simplified!), Jack and Jill. This table shows the individual demand schedules for lattes. The column on the far right is the summation of the individual demand curves, which becomes the market demand curve.

Market demand schedules
Market Demand Schedule

At $3 per latte, Jill would buy 24 lattes a month and Jack would buy 15. Therefore, the market demand at $3 per latte is 39 per month. You can also graph the market demand curve, which is the most common method of presenting a demand curve. This graph shows the same market demand curve as the table.

Market demand curve graph
Market Demand Curve

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Additional Activities

Example 1: Market Demand for Tacos

Assume that in the market for tacos, Mike and Steve are the only consumers and their individual demand schedules are represented in the table below. Using the information in the table, complete the following steps:

  1. Complete the table by filling in the number of tacos demanded in the market (by both Mike and Steve) at each price.
  2. Using these numbers, graph the inverse demand curve (HINT: The inverse demand curve is drawn with the price (P) on the y-axis and the quantity (Q) on the x-axis).

Once you complete these steps, answer the following questions:

  • At a price of $8, how much tacos are demanded by the market?
  • If producers in the market want to sell 11 tacos, what does the price need to be to sell all 11 ?
  • Assume that producers in the market only wanted to sell tacos to Steve, what minimum price would they need to charge so that Steve would buy tacos, but not Mike?
  • Assuming the producers were unable to prevent either Mike or Steve from directly buying the tacos (if they wanted to purchase them), is there a price that could be charged that would result in Mike buying tacos, but not Steve?
  • When you graph the market demand curve, you will see that it is "kinked." Why is this?

Demand for Tacos
Price Mike Steve Market
$14 0 0
$12 0 1
$10 0 2
$8 2 3
$6 4 4
$4 6 5
$2 8 6
$0 10 7

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