53 total
By the end of these notes, you should be able to:
Demand means more than just wanting something. Anyone can want a luxury sports car, but that doesn't mean they will actually buy one.
Effective demand is the willingness and the ability to buy a good or service at a given price. Both conditions must be present:
💡 Example: A student may want the latest smartphone that costs USD 1,200, but if they only have USD 200 in savings, their want is not effective demand. Only when they have both the desire and the money does it become effective demand.
This is why economists use the word "demand" to mean something very specific — it is not just a wish. Throughout these notes, whenever we say "demand," we always mean effective demand.
Individual demand is the quantity of a good that one single consumer is willing and able to buy at various prices.
💡 Example: Sara's demand for coffee shows how many cups she would buy per week at different prices.
Market demand is the total demand from all consumers in a market added together. It is calculated by adding up the quantities demanded by every individual consumer at each price level.
This is called the horizontal sum of all individual demand curves — meaning you add up quantities (on the horizontal axis) at each price.
💡 Example: If at a price of USD 2 per cup, Sara buys 3 cups, Ahmed buys 5 cups, and Priya buys 2 cups, then the market demand at USD 2 is 3 + 5 + 2 = 10 cups.
The market demand curve sits further to the right than any individual demand curve because it represents more consumers combined.
⚠️ Important note: Market demand is not the same as aggregate demand (AD). Aggregate demand refers to the total demand in an entire economy. Market demand refers to one specific product's market.
Individual supply is the quantity of a good that one single producer is willing and able to sell at various prices.
Market supply is the total supply from all producers in a market added together — again, the horizontal sum of all individual supply curves.
💡 Example: If three bakeries are all willing to supply bread, their individual supplies are added together at each price to get market supply.
Sign in to view full notes