Market Demand and Individual Demand Curves: Hot Dog Market Example

Market Demand and Individual Demand Curves

Introduction to Demand Schedules

A demand schedule is a table that shows the quantity of a good that consumers are willing and able to purchase at various prices. In this example, the demand schedule illustrates the quantity of hot dogs demanded by two individual consumers, Larry and Harry, at different prices. The total market demand is the sum of the quantities demanded by all consumers in the market at each price.

Individual Demand Schedules

• Individual demand refers to the quantity of a good that a single consumer is willing to buy at each price.

• In the table below, Larry and Harry's demand for hot dogs is shown at two different prices.

Price per Hot Dog	Quantity Demanded by Larry	Quantity Demanded by Harry	Total Market Demand
$1.80	10	15	25
$0.20	25	30	55

Additional info: The total market demand at each price is calculated as the sum of Larry's and Harry's quantities demanded.

Demand Curves

A demand curve is a graphical representation of the demand schedule, showing the relationship between the price of a good and the quantity demanded. Each individual's demand curve can be plotted using their respective data points from the table above.

• Horizontal axis (x-axis): Quantity of hot dogs per month

• Vertical axis (y-axis): Price per hot dog ($)

• Each individual's demand curve is downward sloping, reflecting the law of demand: as price decreases, quantity demanded increases.

Steps to Draw Individual Demand Curves

1. Plot Larry's demand at each price: (10, $1.80) and (25, $0.20).

2. Plot Harry's demand at each price: (15, $1.80) and (30, $0.20).

3. Label each line appropriately as "Larry's Demand" and "Harry's Demand".

Market Demand Curve

The market demand curve is found by horizontally summing the individual demand curves at each price. This means adding the quantities demanded by all consumers at each price level.

• At $1.80: Larry (10) + Harry (15) = 25 hot dogs

• At $0.20: Larry (25) + Harry (30) = 55 hot dogs

Steps to Draw the Market Demand Curve

1. Plot the total market demand at each price: (25, $1.80) and (55, $0.20).

2. Connect these points to form the market demand curve.

3. Label this line as "Market Demand".

Key Concepts and Definitions

• Law of Demand: All else equal, as the price of a good falls, the quantity demanded rises, and as the price rises, the quantity demanded falls.

• Market Demand: The sum of all individual demands for a good or service at each price.

• Horizontal Summation: The process of adding the quantities demanded by all consumers at each price to obtain the market demand.

Example Calculation

• Suppose the price of a hot dog is $1.80. Larry demands 10 hot dogs, and Harry demands 15 hot dogs. The total market demand is 10 + 15 = 25 hot dogs.

• At a price of $0.20, Larry demands 25 hot dogs, and Harry demands 30 hot dogs. The total market demand is 25 + 30 = 55 hot dogs.

Graphical Representation

• Each individual's demand curve is plotted using their respective data points.

• The market demand curve is plotted by summing the individual quantities at each price and connecting these points.

• All curves should be labeled clearly on the graph.

Formula for Market Demand

The market demand at each price is given by:

$Q^D_{market} = Q^D_{Larry} + Q^D_{Harry}$

Summary Table: Individual vs. Market Demand

Type of Demand	Definition	How to Obtain
Individual Demand	Quantity demanded by a single consumer at each price	From individual's demand schedule
Market Demand	Total quantity demanded by all consumers at each price	Sum individual demands at each price (horizontal summation)

Additional info: In real-world markets, the market demand curve is constructed by summing the demand curves of all consumers in the market, not just two individuals.