Business
Individual demand vs Market demand
Individual demand refers to the quantity of a good or service that a single consumer is willing and able to purchase at a given price, while market demand represents the total quantity of a good or service that all consumers in a market are willing and able to purchase at a given price. Individual demand is specific to one consumer, whereas market demand encompasses the collective demand of all consumers in a market.
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5 Key excerpts on "Individual demand vs Market demand"
eBook - ePubMedia Economics
Applying Economics to New and Traditional Media
- Colin Hoskins, Stuart M. McFadyen, Adam Finn(Authors)
- 2004(Publication Date)
- SAGE Publications, Inc(Publisher)
Individual demand is how much one person or household wishes to buy. Market demand is the total amount all people in the market wish to purchase and is the sum of the demands by individuals. In this chapter, we will concentrate on market demand. Demand is not just a want; it concerns what will actually be bought at different prices and hence is a wish backed by willingness and ability to pay. Buying a product has an opportunity cost, sacrificing consumption of another good that could be bought instead. Thus wanting or even “needing” a good does not constitute demand unless this sacrifice of the next best alternative is acceptable. The market demand for a given good or service will typically vary with the product’s own price, the prices of demand-related products, the level of per capita (per person) income, the number of potential buyers in the market, expected future prices, and the tastes of consumers. In this chapter, we will examine the effect of (the product’s) own price on the quantity demanded of the good, assuming for now that the values of these other determinants of demand are given and unchanged. 2.1.1 How Does the Quantity Demanded Vary With Price? When we refer to a price change in this and other chapters, we are referring to a change in the price of a specific good relative to other goods. Thus an absolute increase in the price of newspapers by 5% is not a price change in this sense if the prices of all other goods increased by 5% also. Other things being equal, the higher the price, the smaller the quantity demanded. Equivalently, the lower the price, the greater the quantity demanded. This is known as the Law of Demand. The major reason for the Law of Demand is the Substitution Effect resulting from the change in relative prices. An increase in the price of a good will make it a less attractive purchase relative to substitute goods whose prices are unchanged. Some people will thus switch to purchasing one of the substitutes. All goods have substitutes
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
While supply curves stem from the marginal cost curves of individual producers, demand curves derive from decisions made by consumers when they decide which goods and services to buy. Demand reflects the purchases that consumers make as they strive to maximize utility, given prices and income. Demand is a technical term that describes consumer purchases, or:- Demand = consumer willingness and ability to pay for a good.
A good’s price is the most important determinant of demand, and a Demand Curve is a graphic representation commonly used to show the relationship between the price of a good and the quantity demanded of that good.- Demand Curve = a function connecting all combinations of prices and quantities consumed of a good, ceteris paribus .
9.1.1 The individual consumer’s demand curve for macaroni and cheese in Pittsburgh, Pennsylvania
The goal here is to derive an individual consumer’s demand curve. Begin by assuming that a college student in Pittsburgh has USD 40/week to spend on food. The student purchases two types of food: macaroni and cheese (Y1 ), which each initially cost USD 2/box (PY1 = USD 2/box), and pizza (Y2 ), which costs USD 5/pizza (PY2 = USD 5/pizza). Suppose that the grocery store lowers the price of macaroni and cheese from the initial price of USD 2/box to USD 1/box, and later, to USD 0.50/box. These data can be used to derive the relationship between the price of macaroni and cheese and the quantity demanded (Qd ). The data help answer the question, “How do changes in price affect the quantity demanded of a good?”The student’s budget for food is USD 40/week, so income (M) equals USD 40/week. In this case, “income” refers to the amount of money allocated to food purchases in a given time period. The following facts allow an observer to graph the consumer’s equilibrium, as shown in Figure 9.1
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
Chapter 10 shows how supply and demand curves interact to determine the prices and quantities of goods. The study of consumer behavior is important to producers, since consumer choices are the main determinant of profitability.9.1 Demand
While supply curves stem from the marginal cost curves of individual producers, demand curves derive from decisions made by consumers when they decide which goods and services to buy. Demand reflects the purchases that consumers make as they strive to maximize utility, given prices and income. “Demand” is a technical term that describes consumer purchases, or:- • Demand = consumer willingness and ability to pay for a good.
A good’s price is the most important determinant of demand, and a demand curve is a graphic representation commonly used to show the relationship between the price of a good and the quantity demanded of that good.- • Demand Curve = a function connecting all combinations of prices and quantities consumed of a good, ceteris paribus .
9.1.1 The individual consumer’s demand curve for macaroni and cheese in Pittsburgh, Pennsylvania
The goal here is to derive an individual consumer’s demand curve. Begin by assuming that a college student in Pittsburgh has USD 40/week to spend on food. The student purchases two types of food: macaroni and cheese (Y1 ), which each initially cost USD 2/box (PY1 = USD 2/box), and pizza (Y2 ), which costs USD 5/pizza (PY2 = USD 5/pizza). Suppose that the grocery store lowers the price of macaroni and cheese from the initial price of USD 2/box to USD 1/box, and later, to USD 0.50/box. These data can be used to derive the relationship between the price of macaroni and cheese and the quantity demanded (Qd
eBook - ePubIntermediate Microeconomics
Neoclassical and Factually-oriented Models
- Lester O. Bumas(Author)
- 2015(Publication Date)
- Routledge(Publisher)
The same supply function, for example, cannot refer to both the most rudimentary Chevy and the most sophisticated Cadillac. (3) In its basic form the quantities supplied and demanded are functions of price alone. This is because all other relevant variables are held constant—making them shift parameters. (4) Basic demand and supply functions are static. They only hold true during short durations of time; time periods during which shift parameters do not vary. (5) Supply and demand functions are really expectational. They cannot tell us how many cars will be bought per month, at various prices, but how many are expected to be bought per month at various prices. We are actually dealing with probabilistic matters—not certainties. (6) Finally, for market functions, the boundaries of the market or the population of buyers and sellers should be given. Markets for residential housing are usually specified as covering a particular locale; those for grains and precious metals can be worldwide. Monopoly markets have one seller with the number of buyers dependent on the particular market. Your demand is that of an individual. The Individual Consumer Demand Function Economists view the individual demand for consumer goods in two different ways: as the demand of a single person or as that of a household. We smoothly slip from one to the other, but in some ways they are quite different. It is assumed in this chapter that the demand of an individual consumer is the same as that of the household to which she belongs. In Chapter 4 the difference between the two is examined. Of course, for individuals who live alone there is no difference. Three Forms of the Demand function The demand function, as other functions, can be shown in three different forms: graphical, tabular, and mathematical
eBook - ePubMicroeconomics
A Global Text
- Judy Whitehead(Author)
- 2014(Publication Date)
- Routledge(Publisher)
3 Market Demand and ElasticityFrom Individual to Market Demand ; Own-Price Elasticity of Demand ; Income Elasticity of Demand ; Cross-Price Elasticity of Demand .The demand curve for the individual consumer, derived from utility theory, was shown in Chapter 2 to be downward sloping for a normal good. The demands of individual consumers are now aggregated to arrive at the market demand, following which the concept of elasticity of demand is introduced.The elasticity concept is central to economic analysis and wide-ranging in its application, from the village shoe-repairer to the largest conglomerate and extending to trade policy at the national level. However, since elasticity is not highly intuitive in its construction and use, it often tends to be misunderstood and under-appreciated. This chapter examines price, income and cross elasticity of demand and their application to show their significance for economic analysis.3.1 From Individual Demand to Market Demand
Using different approaches, the Cardinal, the Ordinal and the Revealed Preference theories, the conclusion is the same, namely, that the individual’s demand curve is downward sloping (negatively sloped) for a normal good. The downward sloping demand curve for the individual consumer is based on the ceteris paribus assumption, thereby holding constant all factors that affect demand other than the price of the product being demanded. These other factors being held constant are referred to as shift factors .Changes in price are reflected in movements along the demand curve. Changes in the other factors which affect demand, such as income, taste or preferences and the price of other goods, are reflected in a shift in the demand curve. These shift factors affect the position of the demand curve.
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