1.2.1.4 Individual demand versus market demand

Individual demand and market demand are related concepts that describe the quantity of a good or service that an individual consumer or all consumers in the market are willing and able to buy at various price levels. While they share similarities, they also have distinct characteristics. Let’s explore the differences between individual demand and market demand:

Individual Demand:

1. Definition: Individual demand refers to the quantity of a good or service that a single consumer is willing and able to buy at different prices, given their own preferences, income, and other individual factors.
2. Determinants: Individual demand is influenced by factors such as the consumer’s income, price of the good, prices of related goods, consumer preferences, and any other personal factors that impact their purchasing decisions.
3. Representation: Individual demand is typically represented by an individual’s demand curve, which shows the relationship between the price of the good and the quantity of the good demanded by that specific consumer.
4. Aggregation: Individual demand curves are aggregated to calculate the market demand. The market demand is the summation of the quantities demanded by all individual consumers in the market at each price level.

Market Demand:

1. Definition: Market demand refers to the total quantity of a good or service that all consumers in the market are willing and able to buy at different prices during a specific period.
2. Determinants: Market demand is influenced by the same factors that affect individual demand, but it considers the cumulative effect of all consumers in the market.
3. Representation: Market demand is represented by the market demand curve, which shows the total quantity demanded by all consumers in the market at each price level. The market demand curve is obtained by horizontally summing the individual demand curves in the market.
4. Aggregation: Market demand is the sum of the quantities demanded by all individual consumers at each price level. For a given price, market demand is the sum of the quantities demanded by each individual consumer in the market.

Key Differences:

1. Scope: Individual demand focuses on the preferences and behavior of a single consumer, while market demand considers the collective behavior of all consumers in the market.
2. Representation: Individual demand is represented by an individual’s demand curve, while market demand is represented by the market demand curve, which is the horizontal sum of individual demand curves.
3. Determination: The determinants of individual demand are personal to each consumer, while the determinants of market demand are the aggregation of factors that influence all consumers in the market.