The market demand curve

Question

BlackTom AI · Accepted Answer

Situating the topic: when we talk about the market demand curve, we are aggregating the purchasing intentions of all consumers in the market.
First, consider the fundamental idea behind a market demand curve: it reflects the total quantity demanded at each price by all buyers combined, not just a single individual.
A common way to obtain this market demand is by horizontally summing the individual demand curves. In practical terms, at any given price, you add up the quantities demanded by each consumer to get the market quantity demanded. This horizontal summation captures how many units the entire market would buy at that price.
In contrast, vertical summation (adding prices at a fixed quantity) would be conceptually inappropriate for constructing a demand curve, since price is determined by the market across buyers, not by summing price levels across individuals. The market demand curve does not reflect a sum of prices; it reflects the total quantity demanded at each price.
Another potential misinterpretation is to think the market demand equals the demand of a representative individual multiplied by the number of individuals. While this intuition sometimes appears in teaching, it can be misleading unless adjusted for variations in preferences, incomes, and substitution effects across consumers. The precise construction relies on horizontal addition of each person’s quantity demanded at each price.
Additionally, the market demand curve is typically downward-sloping due to the law of demand: as price falls, the quantity demanded across all buyers increases, and aggregating individual responses through horizontal summation preserves this monotonic relationship.
In summary, the statement that the market demand curve is the horizontal sum of individual demand curves accurately describes how the market demand is formed by aggregating all consumers' quantities demanded at each price. It contrasts with the incorrect notion of vertical summation or merely averaging prices, which do not capture aggregate buying behavior across the market.

ECON 215-002 HOMEWORK 4

The market demand curve

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