Market Demand curve and its derivation
The total amount of goods purchased by all consumers in any market at a time is known as market demand. It is the sum of all individual demand or the aggregation of the preference of all the individual of a commodity.
The table which shows the various price-quantity relationships of all the consumers of the society is called market demand schedule. If the price-quantity combinations of the table are plotted into the graph and joined together, the market demand curve is obtained.
Various prices of a commodity and the quantity demanded by three individual consumers A, B, and C are presented in the table 1.3
|price(Rs)||demand of A||Demand of B||Demand of C||Market demand(A+B+C)|
As market demand is the sum of individual demands, it is shown in the last column of the table. When the price is Rs 5 per unit, the market demand is 9. When the price is Rs 5 per unit,the market demand is 12 units. Similarly, when price is Rs 3, Rs 2, Rs 1 per unit, market demand is 15, 18 and 21 respectively. Market demand is also inversely related to the price of the commodity.
If the combinations of price and market demand are plotted into the graph and joined continuously, the market demand is obtained.
In the figure 1.3, market demand is shown along x-axis and price is shown along y-axis. When price is Rs 5 per unit, market demand is 9 units. This combination of price and demand is shown by point A. When price is Rs 4 per unit, market demand is 12 units and the combination is B. Similarly, when price per unit is Rs 3, and Rs 1; market demand is 15, 18 and 21 units respectively. These combinations of price-quantity relationship are C, D and E respectively. If these combination points A, B, C, D and E are joined continuously, the market demand curve dd is obtained.