Market Demand: The Total Demand for a Good or Service by All Consumers in a Market
🍎 1. What Exactly Is Market Demand? (Starting with a Lunchroom)
Imagine it is Monday in your school lunchroom. You have $5 and you really want a slice of pepperoni pizza. Your friend Emma has $7 and she wants two slices. Another friend, Carlos, has no money today so he is not demanding pizza. The individual demand is what each person is willing to buy at different prices. But when the lunch lady wants to know how many slices to bake, she adds up all the students’ requests. That total is market demand.
Formally, market demand is the sum of the quantities demanded by every individual buyer at each possible price. We write the market demand function as:
\( Q_m(P) = q_1(P) + q_2(P) + \dots + q_n(P) \)
This addition happens horizontally on a graph — we add the quantities, not the prices. Market demand inherits the law of demand: as price rises, quantity demanded falls; as price falls, quantity demanded rises.
| Price per slice | You (individual) | Emma (individual) | Carlos (individual) | Market Demand |
|---|---|---|---|---|
| $3.00 | 0 | 1 | 0 | 1 |
| $2.00 | 1 | 2 | 0 | 3 |
| $1.00 | 2 | 3 | 1 | 6 |
🧠 2. Five Hidden Engines: What Makes the Whole Market’s Demand Shift?
Sometimes the whole market demand curve moves. This is not the same as moving along the curve because of a price change. When the entire curve shifts right (more demand at every price) or left (less demand at every price), one of these five shifters is at work:
- Tastes & Preferences: If a celebrity drinks a new brand of bubble tea, thousands of fans want it → demand shifts right.
- Income: When you get a bigger allowance, you buy more video games (normal good). For instant noodles (inferior good), higher income may lower demand.
- Prices of Related Goods: Substitutes (tea vs. coffee): if coffee price skyrockets, tea demand rises. Complements (printers and ink): if printers become cheap, more ink is demanded.
- Expectations: If you hear next week’s snowstorm will double the price of sleds, you buy one today → demand increases now.
- Number of Buyers: A new housing development near your town brings +500 families → market demand for groceries expands.
📏 3. Elasticity: How Much Does the Market React?
Now we move to a concept that challenges high‑school economists: price elasticity of demand (PED)[1]. It measures how responsive the market demand is to a price change. If a small price cut causes a huge jump in quantity demanded, demand is elastic. If price changes barely affect quantity, demand is inelastic.
\( PED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} \)
Because demand curves slope downward, PED is usually negative, but economists often talk about the absolute value.
| If |PED| is … | Type of demand | What happens when price rises 10%? |
|---|---|---|
| > 1 | Elastic | Qd falls more than 10% (luxury cars) |
| < 1 | Inelastic | Qd falls less than 10% (life‑saving insulin) |
| = 1 | Unit elastic | Qd falls exactly 10% |
🍋 4. Real‑World Lemonade: From Driveway to Downtown Market
Let us follow Mia. In June, she opens a lemonade stand on her driveway. Her individual demand? Actually, she is the seller. But she surveys her neighbours: at $2 per cup, 5 neighbours buy; at $1.50, 8 buy; at $1, 12 buy. That is the market demand for her block.
In July, a heatwave hits the whole city. Everyone is thirsty. The local news runs a story: “Lemons boost immunity!” The taste shifter kicks in. At every price, more people want lemonade. Mia’s little market demand curve shifts right.
In August, a big supermarket opens two blocks away and sells lemonade for $0.80. That is a substitute good. Mia’s market demand collapses — shift left. She now understands that market demand is not fixed; it dances with the world around it.
❓ 5. Important Questions About Market Demand
No. Quantity demanded is a specific number at a specific price. Market demand is the entire schedule or curve showing quantities at all prices.
It shifts the whole curve to the right. More is demanded at every price. The slope (elasticity) may stay the same or change, but the primary effect is a shift.
Yes, but it is rare. Example: a life‑saving drug with no substitute. People will pay almost any price for the exact same quantity. The vertical demand curve has \( PED = 0 \).
📌 Conclusion: Why Market Demand Matters for Everyone
📚 Footnote
[1] PED = Price Elasticity of Demand. A numerical measure of how responsive the quantity demanded of a good is to a change in its price.
[2] Qd = Quantity demanded. The specific amount of a good that buyers are willing to purchase at a given price.
[3] Substitutes = Goods used in place of each other (e.g., butter and margarine).
[4] Complements = Goods used together (e.g., gaming console and video games).