Market demand as the sum of individual demand | APⓇ Microeconomics | Khan Academy

Summary

This educational video explains the concept of market demand curves by using a simplified example of an apple market with only two buyers. It illustrates how individual demand curves are summed to form the overall market demand curve. The video demonstrates this by showing the demand curves for each buyer at various prices and then adding their quantities to determine the market's total demand at each price point, ultimately visualizing the market demand curve.

Takeaways

• 🍎 The video explains the concept of market demand curves, emphasizing that they are the sum of individual demand curves within the market.
• 📊 To simplify the concept, the video uses an example of an apple market with only two buyers, each having their own demand curve.
• 📈 The demand curve for Buyer One shows no interest in purchasing apples at prices above $3 per pound, and their demand increases as the price decreases.
• 📉 Similarly, Buyer Two's demand curve indicates no demand at prices above $7 per pound, with their demand peaking at $1 per pound where they would buy 8 pounds per week.
• 🔢 The video illustrates how to construct the market demand curve by adding the quantities demanded by each buyer at various price points.
• 💲 At a price of $7 per pound, neither buyer is interested in purchasing apples, resulting in a market demand of zero pounds.
• 📉 At $5 per pound, only Buyer Two is willing to buy, leading to a market demand of 2 pounds per week.
• 📈 As the price drops to $3 per pound, Buyer One starts buying (1 pound) and Buyer Two increases their purchase to 5 pounds, making the total market demand 6 pounds.
• 🍏 At $1 per pound, both buyers are at their maximum demand, with Buyer One buying 2 pounds and Buyer Two buying 8 pounds, totaling a market demand of 10 pounds.
• 🌟 The video concludes by highlighting that in reality, market demand curves would be derived from the sum of demand curves of potentially millions of buyers, but the example serves to illustrate the basic principle.

Q & A

What is the main focus of the video script?

The main focus of the video script is to explain how market demand curves are derived from the sum of individual demand curves within a market.

Why does the instructor simplify the apple market to only two buyers?

The instructor simplifies the apple market to only two buyers to make the concept easier to understand and visualize, even though real markets may have millions of actors.

What is the vertical axis in the demand curve graph?

The vertical axis in the demand curve graph represents the price, specifically the price per pound of apples in this example.

What does the horizontal axis in the demand curve graph represent?

The horizontal axis in the demand curve graph represents the quantity of apples, measured in pounds per time period, such as pounds per week.

At what price does Buyer One start buying apples according to the script?

Buyer One starts buying apples at a price of three dollars per pound, where they are willing to buy one pound per week.

What is the maximum quantity Buyer Two is willing to buy at one dollar per pound according to the script?

At one dollar per pound, Buyer Two is willing to buy eight pounds of apples per week.

How does the instructor demonstrate the creation of the market demand curve?

The instructor demonstrates the creation of the market demand curve by adding the quantities demanded by each buyer at various price points.

At a price of five dollars per pound, what is the total quantity demanded by the market according to the script?

At a price of five dollars per pound, the total quantity demanded by the market is two pounds, all from Buyer Two.

What is the quantity demanded by the market at a price of three dollars per pound?

At a price of three dollars per pound, the quantity demanded by the market is six pounds, with one pound from Buyer One and five pounds from Buyer Two.

How does the instructor suggest visualizing the summation of individual demand curves to form a market demand curve?

The instructor suggests visualizing the summation of individual demand curves by stacking them horizontally, adding the quantities demanded at each price point for all buyers.

What is the total quantity demanded by the market at one dollar per pound according to the script?

At one dollar per pound, the total quantity demanded by the market is ten pounds, with two pounds from Buyer One and eight pounds from Buyer Two.

Outlines

00:00

🍎 Understanding Market Demand for Apples

The video begins by simplifying the concept of market demand by focusing on the apple market. It emphasizes that market demand curves are essentially the sum of individual demand curves of all market participants. The instructor uses a hypothetical scenario with only two buyers to illustrate this point. The video explains how the demand curves for each buyer are represented graphically, with price on the vertical axis and quantity (in pounds per week) on the horizontal axis. Buyer one's demand increases as the price decreases, while buyer two shows a higher quantity demanded at lower prices. The instructor invites viewers to consider how the market demand curve would be formed by combining these individual demand curves.

Keywords

💡Market for apples

The 'market for apples' serves as a simplified model in the video to illustrate broader economic concepts. It represents a hypothetical scenario where the focus is on the trading dynamics of apples, which is used to explain more complex market behaviors. The video uses this example to demonstrate how individual demand curves contribute to the overall market demand.

💡Demand curves

In economics, 'demand curves' depict the relationship between the price of a good and the quantity demanded by consumers. The video emphasizes that market demand curves are an aggregation of individual demand curves, showing how the collective buying behavior of all market participants influences market demand.

💡Individual demand curves

These curves represent the quantity of a good that individual buyers are willing and able to purchase at various prices. The video uses two hypothetical buyers to demonstrate how their individual demand curves can be combined to form the market demand curve.

💡Price per pound

The 'price per pound' is the cost at which apples are sold in the video's example. It is a specific way to express the price of apples, which is used to plot the demand curves and understand how changes in price affect the quantity demanded.

💡Quantity demanded

The 'quantity demanded' refers to the amount of a product that consumers are willing and able to purchase at a given price. In the video, this concept is used to plot the demand curves for both buyers and to calculate the total market demand at various price points.

💡Market actors

'Market actors' or 'market participants' are the individuals or entities that engage in buying and selling within a market. The video simplifies the market to only two buyers to illustrate the concept, but it notes that real markets can involve millions of actors.

💡Demand schedule

A 'demand schedule' is a table that shows the quantity of a good that consumers are willing to purchase at different prices over a specific period. The video mentions this as an alternative way to represent demand, which can be translated into a graphical demand curve.

💡Price value

The 'price value' in the context of the video refers to the specific price at which consumers are willing to engage in a transaction. It is a critical point on the demand curve where the quantity demanded is determined.

💡Quantity per time period

This term is used to describe the amount of a product that is demanded or supplied within a specific timeframe, such as 'pounds per week' in the video. It helps to standardize the measurement of demand across different periods.

💡Market demand curve

The 'market demand curve' is a graphical representation that shows the total quantity demanded by all consumers in the market at various price levels. The video constructs this curve by summing the individual quantities demanded by each buyer at different prices.

💡Summation of quantities

In the context of the video, 'summation of quantities' refers to the process of adding up the individual quantities demanded by each buyer to determine the total market demand at a given price. This is a fundamental step in deriving the market demand curve from individual demand curves.

Highlights

The market demand curve is the sum of individual demand curves for every member of that market.

Simplification of the apple market to only two buyers to illustrate the concept.

Demand curves are shown with price on the vertical axis and quantity on the horizontal axis.

Buyer one's demand curve shows no interest at higher prices, increasing demand as price decreases.

Buyer two's demand curve shows a higher quantity demanded at lower prices, with no interest at seven dollars per pound.

At seven dollars per pound, there is no demand from either buyer.

At five dollars per pound, buyer two demands two pounds, while buyer one shows no interest.

At three dollars per pound, the total market demand is six pounds (one from buyer one and five from buyer two).

The market demand curve is constructed by summing the quantities demanded at each price point.

At one dollar per pound, the market demand is ten pounds (two from buyer one and eight from buyer two).

The process of creating a market demand curve involves horizontal stacking of individual demand curves.

The concept can be applied to real-world markets with millions of buyers.

The video uses a simplified model to help understand the formation of a market demand curve.

The importance of summing quantities at each price to find the total market demand.

Visual representation of how market demand curves are derived from individual demand curves.

The practical application of understanding market demand curves for economic analysis.

The video encourages viewers to pause and think through the concept on their own.

Transcripts

- [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.