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Current time:0:00Total duration:4:37

Market demand as the sum of individual demand

AP.MICRO:
MKT‑3 (EU)
,
MKT‑3.A (LO)
,
MKT‑3.A.6 (EK)

Video transcript

- [Instructor] In this video, were going to think about the market for apples, but the more important thing isn't the apples, it's to appreciate that the demand curves for a market are really the sum of the individual demand curves for every member of that market, and most markets will have many tens or hundreds of thousands of actors in it, maybe millions or tens of millions of actors in it, but for the sake of simplifying things, we're going to assume that the apple market has only two buyers, and we have their demand curves right over here. This is the demand curve for buyer one, and this is the demand curve for buyer two, and so if the vertical axis is price, and maybe this is price per pound of apples, and quantity, let's just say that's pounds per time period, maybe pounds per week, we can see that from buyer one's demand curve that at a price of one, two, three, four, five dollars per pound, they don't wanna buy any pounds. At a price of three dollars per pound, they're willing to buy one pound per week. At a price of one dollar per pound, they're willing to buy two pounds per week. We can similarly look at the demand curve for buyer two, and sometimes you'll see this in table form where it's called a demand schedule, but you can see at one, two, three, four, five, six, seven, at seven dollars, buyer two is not interested in apples at seven dollars a pound. At five dollars a pound, they are interested in buying two pounds of apples per week. At three dollars per pound, they're interested in buying, so let's see this is one, two, three, four, five pounds per week, and at one dollar per pound, they're interested in buying six, seven, eight pounds per week. So based on this data here, buyer one and buyer two are the only individuals in this market. Once again, a huge oversimplification. What would the market demand curve look like? Pause this video and try to think that through. Well, if we go to the various prices, so let's see, at a price of seven dollars, there is not going to be any interest in any apples. So, I could maybe put that right over there at a price of seven dollars, but what happens is the prices goes down and we could just sample what happens when we get to a price of five dollars? Buyer one is still not interested, but buyer two is now willing to buy two pounds per week. And so, at a price of five dollars, the market as a whole is willing to buy two pounds from buyer two and zero pounds from buyer one, so we'll have a total of two pounds. So we're right over there. So that is at five dollars per pound. The market is willing to, is demanding a quantity of two pounds per week. And then let's go to three dollars. At three dollars, now, buyer one would buy one pound per week and buyer two would buy five pounds per week. So in total, there would be six pounds demanded or the quantity demanded would be six pounds. So three dollars, the quantity demanded is three, four, five, six. So that would put us right about there. And then last but not least, and once again, I'm just sampling these points to make the point to you that we really would just add, we would take the sum of these curves but we're kind of stacking them, we are stacking them horizontally as opposed to vertical because for any given price, we're adding up the quantities. So let's go to one dollar a pound. At one dollar a pound, buyer one is willing to buy two pounds, and at one dollar a pound, buyer two is willing to buy eight pounds. You put those together, two plus eight, you get to 10 pounds. So this was two, three, four, five, six, seven, eight and then nine and ten, we're going a little bit off the screen here, I could have planned better for it, but let me go all the way over here so I'll extend my axis so that's nine and then this is ten so that at one dollar, the market would be willing to buy ten pounds per week. And you could sum at any other point or any other points in between and what you would do is you would get a market demand curve that looks a little something like this. And you can see, visually, what has happened here. For any price value, we are summing the quantities for all of the buyers in the market. Now here, there's only two buyers. Now if you were doing this in the real world, you might be dealing with millions of buyers, but this is just to understand how a market or where a market demand curve is actually coming from.
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