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The Market Demand Curve: Definition, Equation & Examples

Instructor: Kallie Wells

What is the market demand curve and how is it derived? This lesson will explain the concept of a market demand curve and show you how one would go about creating the curve.

We also recommend watching The Money Market: Money Supply and Money Demand Curves and Understanding the Demand Curve in Microeconomics

Definition

The market demand curve is the summation of all the individual demand curves in a given market. It shows the quantity demanded of the good by all individuals at varying price points. For example, at $10/latte, the quantity demanded by everyone in the market is 150 lattes per day. At $4/latte, the quantity demanded by everyone in the market is 1,000 lattes per day. The market demand curve gives the quantity demanded by everyone in the market for every price point. The market demand curve is typically graphed and downward sloping because as price increases, the quantity demanded decreases. It can also be provided as a schedule, which is in table format.

Equation

To determine the market demand curve of a given good, you have to sum all the individual demand curves for the good in the market. The following is the algebraic equation for market demand. The quantity demanded (Q) is a function of price (P) and it is summing all the individual demand curves (q), which are also a function of price. The subscripts one through n represent all the individuals in the market.

Market Demand

Examples

To make things easy, let's assume we have two people in the market for lattes (we all know this is extremely simplified!), Jack and Jill. The table below shows the individual demand schedules for lattes. The column on the far right is the summation of the individual demand curves, which becomes the market demand curve.

Market Demand Schedule

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