Chapter 3, Problem 1VQP

To determine

Derivation of the market demand curve and its diagrammatic representation.

Explanation of Solution

The market demand curve can be derived by adding each individual’s quantity demand at a different price. It can be represented as follows:

In Figure 1, both panels (a) and (b) indicate the individual demand curve of Buyer 1 and Buyer 2, respectively, where the horizontal axis represents quantity demanded and the vertical axis represents the price of the good. In the figure, Buyer 1 demanded 10 units and Buyer 2 demanded 9 units at $9. Therefore, the total quantity demanded at $9 is 19 units. Similarly, Buyer 1 demanded 20 units and Buyer 2 demanded 18 units at $7. Hence, the total quantity demanded at $7 is 38 units. In Panel (c), the vertical axis represents the total quantity demanded in the market and the vertical axis represents price. By plotting each individual’s quantity demand at different prices creates a market demand curve.

Economics Concept Introduction

Demand curve: A demand curve shows the level of quantity demanded at different price levels. Since there is a negative relationship between the price and the quantity, the demand curve slopes downward.