MARGINAL ANALYSIS AND DEMAND

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MARGINAL ANALYSIS AND DEMAND

• PRINCIPLES OF MICROECONOMICS

Dr. Fidel Gonzalez Department of Economics and
Intl. Business Sam Houston State University
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OPPORTUNITY COST
MARGINAL ANALYSIS
Elasticity
Elasticity
SUPPLY
DEMAND
MARKET EQUILIBRIUM
CONSUMER SURPLUS, PRODUCER SURPLUS AND TOTAL
SURPLUS
MARKET EFFICIENCY
MARKET FAILURE
Pigouvian Taxes Quotas Coase Theorem Command and
control
EXTERNALITIES
TAXES
PUBLIC GOODS
COMMON GOODS
ARTIFICIALLY SCARCE GOODS
GAME THEORY
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COST-BENEFIT ANALYSIS
When deciding if an activity it is useful to
compare the benefits and costs. If Benefits
Cost then the activity provides an overall gain
and it makes sense to do it. If Cost Benefit
then the activity is very costly and it does not
make sense to do it. In economics we introduce
and extra refinement to this cost-benefit
analysis. I will show you that what matters when
making a decision are not the total costs and
benefits but rather the marginal costs and
benefits. Marginal Cost the cost of an extra
unit. Marginal Benefit the benefit of an extra
unit For instance, when considering whether to
watch another hour of TV you consider the
marginal benefit and cost. Marginal Benefit of an
extra hour of TV enjoyment from the show,
leisure and relaxed time. Marginal Cost you
could be doing something else like walking your
dog, work, studying, talking to your family and
friends.
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COST-BENEFIT ANALYSIS
If Marginal Cost of watching TV for another hour
Marginal Benefit of watching TV of another
hour then you should watch TV for another
hour Note that in this rule, it does not matte
how long have you watched TV before. What
matters is the extra benefit and the extra cost
of the activity. If it did, then you will never
stop watching TV because the benefits from the
past will make the total benefit always bigger
than the total costs. If Marginal Cost of
watching TV for another hour Marginal Benefit
of watching TV of another hour then you should
NOT watch TV for another hour
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APPLICATION OF MARGINAL COST AND BENEFIT
A year ago my sister in-law talked to me about a
decision she was facing.
She had been together with her boyfriend for
about four years.
However, she was not sure if she was in love
anymore. Her feeling for him were not as strong
as they used to be.
Her problem is that she did not know if she
wanted to break up with him or not.
We can use marginal benefits and cost to solve
her problem.
From the conversation with her, it was clear that
the benefit of spending another day with her
boyfriend was very low.
Her marginal benefit of staying with him was low
What about the costs? The cost of staying with
him were also low, at that point she had not met
anyone else she would have liked to date.
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Why is it important the fact the she had not met
anyone else?
Because as soon as you find someone you like the
opportunity cost of staying together with you
significant other increases..
What was my recommendation?
1) It does not matter that you have been together
with your boyfriend for more than four years.
What matters is the marginal benefit and cost.
2) If the benefit of staying with him another day
is higher than the cost, then you should stay
together. Overall, the enjoyment from time spent
with him is higher than the boredom of staying
with him
She stayed with him for another six months, when
something happened.
She met someone else. At that point she did not
hesitate to break up with him. The cost of
staying with the old boyfriend another day
increased by a lot.
Everyday she stayed together meant to sacrifice
time with the other person.
At that point the marginal cost of staying with
the boyfriend was higher than the marginal
benefit of staying with him.
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This is a very common story in other couples,
because usually the marginal cost of staying with
the current boyfriend/girlfriend is very low and
the marginal benefit is hardly ever negative (you
still get some enjoyment from that person).
Why do you think cheating is so common? Why
usually people break up once they already found
another partner?
Why did I tell her that the time spent with him
did not matter when making the decision of
breaking up with him or not?
If it did matter then you will marry the first
person you have ever dated!!!!!!! What matters is
how you feel about spending an extra day with
that person. It is likely that if you have spent
some years with somebody you have developed some
kind of relationship that increase your enjoyment
each extra day you stay together
However, the reason to stay with someone is based
on the marginal benefit and cost. If past time
affects the marginal benefit or cost does not
change the marginal rule.
What do you think now about the people that leave
their spouse after 20 or 40 years or
marriage? Some people would say How can she/he
sacrifice so many years of marriage? You can now
answer that question.
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Marginal benefits and cost of dating the old
boyfriend
costs
Breaks up with old boyfriend. The marginal cost
is higher than the marginal benefit of another
day.
MC of dating the old boyfriend goes up
significantly when she meets someone else (the
new friend)
Marginal Benefit
When there is nobody else the MC of dating the
old boyfriend is zero
Marginal Cost (MC)
Days continuing with the old boyfriend
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Willingness to pay
Now, we are going to use marginal analysis to
derive the demand and supply curve. We start
first with the demand.
I like beer, so this is how much I am willing to
pay for different amounts of beer
for one beer I am willing to pay 10
for two beers I am willing to pay 18
for three beers I am willing to pay 25
for four beers I am willing to pay 31
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Marginal willingness to pay
Now, lets figure out how much I am willing to pay
for the first, second, third and fourth beer.
for the first beer I am willing to pay 10
For two beers I am willing to pay 18
If am willing to pay 10 for the first beer, and
18 dollars for two beers, that means that I am
willing to pay 8 for the second beer.
10
8


18
For three beers I am willing to pay 25
If am willing to pay 10 for the first beer, 8
for the second beer and 25 for three beers, that
means I am willing to pay 7 for the third beer.
10

8

7

25
For four beers I am willing to pay 31
If am willing to pay 10 for the first beer, 8
for the second beer, 7 for the third beer and 31
for four beers, that means I am willing to pay 6
for the fourth beer.
10

8

7

6

31
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Marginal willingness to pay
What I am willing to pay for the first, second,
third and fourth beer has a fancy name, it is
called Marginal Willingness to Pay.
Marginal Willingness to Pay the amount a
consumer is willing to pay for an extra unit.
These are my marginal willingness to pay for each
beer
8
7
6
10
10 is my marginal willingness to pay for the
first beer
8 is my marginal willingness to pay for the
second beer
7 is my marginal willingness to pay for the
third beer
6 is my marginal willingness to pay for the
fourth beer
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Marginal willingness to pay and bribes
The marginal willingness to pay is an important
concept in economics because it is an
approximation of how much the consumer values a
good in monetary terms.
For instance, in the beer example
If my marginal willingness to pay for the first
beer is 10
that means that I value my first beer in 10,
otherwise I would not be willing to pay 10.
10
This also means that for me it is the same get
paid 10 than to drink the first beer. In other
words, if you do not want me to drink my first
beer then you have to pay me 10 to keep in the
same level of happiness. I can bribe people so
that they do not consume the good if I pay their
marginal willingness to pay ( and they will be as
happy as if they had consumed it). For example,
imagine that I have had three beers already and
my friends want me to stop drinking. Also, assume
that we all know my MWTP for the fourth beer. In
that case, how much do my friends have to pay me
so that I do not buy the fourth beer?
A My MWTP for the fourth beer 6.
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Decreasing marginal willingness to pay
It is important to notice that the MWTP is
changes as the quantity consumed of the good
changes.
For instance, in the beer example
My marginal willingness to pay for the first
beer is 10
For the second beer my marginal willingness to
pay is 8, so the value that I put on a second
beer is lower than the value of the first beer.
The value I place on the third beer is 7 which
is lower than the value of the second beer, and
so on. The marginal willingness to pay goes down
as I have consumed more of the good.
Q Why is the marginal willingness to pay
decreasing?
A The more we have of a good, the smaller is its
marginal benefit and the less we are willing to
pay for an additional unit.
For example, when you are thirsty you are willing
to pay a lot of money for the first glass of
water. Once you had your first glass, you are
willing to pay less for the second glass since
you already satisfied part of your need for
water. Moreover, if you continue drinking water
you will realize that at some point drinking more
water does not give you any satisfaction. In fact
you can get a negative benefit for an extra glass
of water (that is, you have a negative MB).
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Marginal willingness to pay and demand
The information from the previous slides is now
presented in a table
Below the table you can see the graph of the
marginal willingness to pay for the first,
second, third and fourth beer.

The marginal willingness to pay for the first
unit is 10
10
The marginal willingness to pay for the second
unit is 8
8
The marginal willingness to pay for the third
unit is 7
7
6
The marginal willingness to pay for the fourth
unit is 6
Beers
4
3
2
1
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Marginal willingness to pay and demand

We can fit a straight line in our previous
graph. The straight line is my Demand Curve for
beer and it represent the marginal willingness to
pay for beer.
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Demand measures the benefit from consuming an
additional beer (benefit measured as the
willingness to pay, MWTP, for the extra
beer). Demand measures the marginal benefit (MB).
8
7
6
DMWTPMB
Beers
4
3
2
1
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Marginal willingness to pay and demand

Going back to the bribes, note that if for
example someone pays me 7, I will not drink the
third beer
10
To the previous graph I added two more points.
When I drink the fifth beer my MWTP is zero.
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The other point is when I drink the sixth beer
my MWTP is minus 2. That is, the extra beer
gives me a negative benefit.
7
DMWTPMB
6
6
Beers
0
4
3
2
1
5
Drinking the sixth beer gives a MB of -2, this
is the last beer we should not had. Having a
negative MB means, that I will be willing to pay
to NOT consume it. That is, if I was forced to
drink the sixth beer, I will be willing to pay 2
dollar NOT to consume the sixth beer.
-2
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ALTERNATIVE VIEW TO DEMAND
Suppose that we have the following information
about the MWTP and the quantity consumed of ice
cream for a SHSU student
The student is willing to pay 1 dollar for the
tenth unit and nothing for the eleventh unit.
Imagine that I ask the student the following If
the price per ice cream is 12 how much are
willing to buy. He will compare marginal benefit
and marginal costs
The marginal benefit of the first ice cream is
10 dollar. What is the marginal cost?
The marginal cost is what it costs to get the
first ice cream. In this case the marginal cost
for the student is 12 dollars. That is, the
marginal cost is equal to the price he has to pay.
In general, Price paid good Price paid MWTP the do not buy it Price
paid MWTP then buy the good
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ALTERNATIVE VIEW TO DEMAND
In this case since P12 10MWTP for the first
unit then will not buy ice cream.
Q What if the price is 7?
P 7 MWTP for the second unit (buy) P7 the third unit (buy) P7 7 MWTP for the fourth
unit (buy) P7 6 MWTP for the fifth unit (DO
NOT buy)
He will only buy the first, second, third and
fourth units. That is, he will buy 4 units.
Because the individual is willing to buy the good
as long as the willingness to pay is equal to the
price. We are going to say that the individual is
willing and able to purchase the good if the
price is equal to the MWTP.
Hence, when PMWTP the individual is willing and
able to buy Q units. For example, when P6 the
individual is willing and able to buy 5 units.
Now, I can rewrite the table as follows
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ALTERNATIVE VIEW TO DEMAND
This is the table with the new definitions
Quantity Demanded the amount of a good or
service that the buyer is willing and able to
purchase at a given price. For instance, when the
price per ice cream ball is 2 the student will
purchase 9 ice cream balls. Clearly, as the price
per unit goes up the quantity demanded will go
down. This is known as the Law of Demand price
and quantity demanded moves in the opposite
direction.
The table above is called the demand schedule
because it shows the prices and their respective
quantity demanded.
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Marginal willingness to pay and demand
P,MWTP
The graph below is the graphic representation of
the demand schedule. The line with the negative
slope is the Demand Curve.
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The graphical representation of the price and
quantity demand is called the demand curve.
Remember that it also represents the relationship
between the MWTP and the quantity demanded.
Demand Curve
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Ice Cream Balls
The negative slope of the demand curve represents
the Law of Demand ( negative relationship between
price and quantity demanded)
The negative slope of the demand curve and the
law of demand are based on the decreasing
marginal willingness to pay.
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Marginal willingness to pay and demand
The consumers marginal willingness to pay
decreases when the quantity of ice cream goes up.
If the price goes down that means that the
consumer is willing to buy more because the
marginal willingness to pay of the next unit is
now equal to the price.
Imagine, we start at a point in which the price
is 3 and the quantity demanded is 8 units. Next,
assume that the price goes up to 4, the quantity
demanded will decrease because the marginal
willingness to pay for the eight unit is 3. The
MB of the eight unit3 of the eight unit. The consumer will decrease
the quantity demanded to the point at which the
new price is equal to the marginal willingness to
pay. The marginal willingness to pay equal to 4
corresponds to the seventh unit. That is, when
the price is equal to 4 the consumer will buy
seven unit. As you can see, the reason that
higher prices reduce the quantity demanded is
that when the price goes up the MWTP (or MB) is
less than the price (MC) and the consumer is not
willing to buy that unit. When the price goes
down, the old MWTP is higher the new price (new
MC) and therefore the consumer buy an extra unit
until MBMC.
Hence, as you can see the Law of Demand is based
on the decreasing marginal willingness to pay.
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Demand and Inverse Demand Equation
P
11
Slope -1
Demand Curve
11
Ice Cream Balls, (Q)
The equation of the demand curve is P - QD 11
, where P is the price and QD is the quantity
demanded of ice cream The previous equation is
called the inverse demand equation. Q Why it is
not called the demand equation if it is the
equation of the demand curve?
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Marginal willingness to pay and demand
A We have implicitly assumed that we are in a
competitive market. Competitive Market is
characterized by three things 1) many buyers, 2)
many sellers and 3) each seller produces a
homogenous good. As a result buyers and sellers
are price-takers. This means that none of them
have market power can not affect the market
price. The consumer and the buyer are
price-takers. They look at the price and then
they decide how much to buy. That is, the
quantity demanded is the dependent variable and
the price is the independent variable. In the
inverse demand equation, the price is the
dependent variable and QD is the independent
variable. Hence, to obtain the Demand Equation we
nee to solve the inverse demand equation so that
QD is on left hand side. The demand equation is
obtained by solving the inverse demand equation
with respect to the quantity demanded P - QD
11, P -11 -QD QD -P 11 (THIS IS THE
DEMAND EQUATION)
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Three ways to look at the demand

• We have looked at the demand in three ways
• Demand Schedule table with the P and QD.
• Demand Curve the graphical representation of the
  demand schedule with P in the y-axis and QD in
  the x-axis.
• Demand Equation from the demand curve we
  obtained the inverse demand equation and for the
  latter we obtained the demand equation

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Determinants of the Individual Demand

• We derived the demand by obtaining the MWTP for a
  good. However, we still do not know what
  determines the MWTP for a good. In general the
  amount a consumer is willing and able to buy will
  depend on the following
• Price of the good.
• Income
• Price of the related goods
• Price of substitutes
• Price of complements

4) Tastes 5) Expectations
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Determinants of the Individual Demand
1) Price of the good for the previous slides we
know that the price of a good will affect the
quantity demanded. According to the Law of Demand
price and quantity demanded move in opposite
directions. If P goes up then QD goes down and
if P goes up then QD goes up. It is important to
distinguish between changes in the demand and the
quantity demanded. When the P change the only
thing that changes in the QD. For example using
the table shown in slide 21, when P goes from 7
to 8 the QD goes from 4 to 3. That is, a change
in the price represents a movement on the same
demand schedule (I am just using another row to
determine the QD). The demand schedule does not
change.
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Movements along the demand and changes in demand
Similarly, the demand curve is not going to
change when P changes. When P changes we move
along the demand curve but we stay in the same
demand curve. That is, the demand does NOT change.
When the price of the good changes the quantity
demanded changes but NOT the demand. we move
along the demand curve but the curve does not
move.
When the price changes from 5 to 8, the
quantity demanded changes from 6 to 3. However,
the demand curve does NOT change.
P
8
A change in the price of the good represents only
a movement along the demand curve
5
DMWTPMB
Q
6
3
Remember A CHANGE IN THE PRICE OF THE GOOD DOES
NOT CHANGE DEMAND, IT ONLY CHANGES THE QUANTITY
DEMANDED. IT REPRESENTS A MOVEMENT ALONG THE
DEMAND CURVE.
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Determinants of the Individual Demand

• Income the income of the consumer determines how
  much he is going to buy at a given price. In
  general, the higher the income the higher the
  quantity of the good he/she is willing and able
  to buy.
• For example, if you get a pay raise and now you
  make 20,000 dollars more per year. At your new
  income you are willing to buy more ice cream at a
  given price. To put it in very rough terms the
  more money you have the more stuff you are
  willing to buy.
• Look at our friend Rob.
• The following table represents his demand for ice
  cream when his income is 50,000 per year.

For each price Rob is willing and able to buy a
higher quantity. Remember that the price is per
unit. If P4 he was willing to buy 4 ice cones.
However, when his income increases when P4 he
is willing and able to buy 6 ice cones. Note that
with higher income he is willing to buy more at
any given price. That is, the QD increased for
all prices.
Income per year increases by 20,000
At every price he is willing and able to purchase
more ice cream because he has more money
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Determinants of the Individual Demand
The graphical representation of the change in the
quantity demand for all prices is a shift in the
demand curve.
When P4 he was willing to buy 4 ice cones.
However, when his income increases when P4 he
is willing and able to buy 6 ice cones. This
takes place for all prices, so the demand curve
shifts to the right.
P
D
When the quantity demanded increases for all
prices we say that the demand increases. An
increase in demand is shown by shifting the
demand curve to the right. When the quantity
demand decreases for all prices we say that the
demand decreases. A decrease in demand is shown
by shifting the demand curve to the left.
4
6
4
Q
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Normal and inferior goods
You may be thinking of a bunch of goods and
services that you will NOT buy if you have higher
income. For example, if your income goes up you
may stop buying maccarroni and cheese and instead
you will buy a steak. Or you may stop buying jack
daniels and instead buy a better quality drink
like Chivas Regal. If the demand for a good
increases when income goes up, we call it a
normal good. Also, the demand for a normal good
will go down if income goes down. In our previous
example, ice cream was a normal good for
Rob. When a good is normal demand and income move
in the same direction. What about the jack
daniels or maccarroni and cheese? These goods
are considered inferior goods. A good is inferior
if the demand goes up when income goes down. It
also works in the opposite directions, if income
goes down and the demand goes up then it is an
inferior good. When a good is inferior demand
and income move in opposite directions.
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Normal and inferior goods
Normal good Income goes up, demand goes up
(shift to the right) Income goes down, demand
goes down (shit to the left) Inferior
good Income goes up, demand goes down (shift to
the left) Income goes down, demand goes up (shit
to the right)
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Determinants of the Individual Demand

• Price of related goods now we are going to study
  how the price of related goods affect the demand.
• Price of substitutes
• The price of substitutes affect the demand of a
  good because the goods compete for the consumers
  preference. Goods that are considered substitutes
  are
• Coke and Pepsi
• Corona and Shinner
• Bud Light and Miller Light
• Potato Chips and Tortilla Chips
• Ice cream and Popsicles

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Determinants of the Individual Demand
Lets consider the last example between Ice Cream
and Popsicles. Note that this goods are similar
to the consumer. If you eat one popsicle you may
not be buy a lot of ice cream since you already
ate something cold and sweet and the other way
around. Imagine that the price of popsicles
increase. We have two effects First, we will see
that the quantity demanded for popsicles will
decrease but the demand for popsicles will stay
the same. Second, since you buy less ice cream
now you are willing to buy more ice cream at any
given price of ice cream. That is, the quantity
demanded of ice cream increases for all prices
and therefore the demand for ice cream also
increases. In summary, an increase in the price
of popsicles decreases the quantity demanded for
popsicles (demand for popsicles does not change)
and increases the demand for ice cream (demand
for ice cream shifts to the right)
Price of Ice Cream
Demand for Ice Cream
Demand for Popsicles
Price of Popsicles
An increase in the price of popsicles reduces the
QD.
Popsicles
Ice Cream
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Determinants of the Individual Demand
In general, Price of substitute increases the
demand of the other good goes up. Price of
substitute goes down the demand of the other good
goes down.

• Now lets look at how the price of complements
  affect the demand
• Price of complements

Complementary goods are goods that are consumed
together. For example beer and peanuts, chips
and salsa, ice and soft drinks, coffee and
donuts, rum and coke, play station and games,
etc. When the price of one of the complementary
goods increases it makes the consumption of the
two goods more expensive so the demand for the
other will decrease. For example, imagine that
I drink coffee with donuts. When the price of
donuts increase it makes the experience of
drinking coffee and eating donuts more expensive.

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Determinants of the Individual Demand
As before an increase in the price of donuts has
two effects First, an increase in the price of
donuts reduces the quantity demanded of donuts,
the demand of donuts stays the same. Second,
higher donuts prices make my coffee with donuts
experience more expensive so I am going to reduce
the level of that activity. That is, I am going
to reduce the quantity demanded of coffee at all
prices of coffee. In other words, the demand for
coffee goes down. In summary, If the price of
complement goes up that reduces the quantity
demanded of that good and reduces the demand of
the other good (shifts demand of the other good
to the left) If the price of complement goes
down that increases the quantity demanded of that
good and increases the demand of the other good
(shifts demand of the other good to the right)
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Determinants of the Individual Demand
4. Tastes this is obvious. If the taste for a
good or service increase then the demand for that
good increases (demand shifts right). The
consumer is willing to buy a higher quantity at
all prices. If the taste for a good or service
decreases then the demand for that good decreases
(demand shifts left)
5. Expectations the expectations about the
future affect the demand of the good today. For
example if you expect that the price of gasoline
will be 5 dollar per gallon tomorrow you will buy
more gasoline today. If you expect that price of
gasoline to go down tomorrow you may wait to fill
out your car until the price goes down. Hence, if
the expected future price is high demand will go
up today. If the expected price is low then
demand will go down today. Also, if you expect
your income to increase in the near future you
the demand for ice cream will go up today. If you
expect that your income will go down in the
future then you demand for ice cream will go down
today.
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Individual and Market Demand

• So far we have talked about the individual
  demand. That is, we have talked about the demand
  of just one person.
• Now, we are going to get the demand for the
  market.
• First, we need to define market.
• Market is a group of sellers and buyers of one
  good or service.
• For example the market of apples includes all the
  sellers and buyers of apples.
• Markets are defined over
• Products type of good or service (apples,
  oranges, ipods, etc).
• Time horizon a good today is different than a
  good tomorrow. For example, an apple today is not
  the same as an apple tomorrow, those are very
  different goods.
• Place a goods or services in different locations
  are different goods. For example, an apple in
  India is different than an apple in India (even
  though the actual apple is almost the same).

38
Individual and Market Demand

• Markets can also be defined over their
  competitive structure
• Competitive Markets many buyers, many seller
  and a homogenous good.
• Oligopoly many buyers a few sellers and a
  homogenous good.
• Monopoly many buyers just one sellers and the
  good produced does not have close substitutes.
• Monopolisitic Competition many buyers, many
  sellers and the good produced by each producer is
  slightly different.
• Later in the semester we will talk about them in
  detail. For the moment just remember that there
  are these four types of markets and we will be
  assuming that we are in a competitive market.

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Individual and Market Demand
Now that we know what a market is, we are going
to obtain the market demand. The market demand
for a good or service is the sum of the of the
individual quantity demanded at each price for
every consumer. Imagine that there are only three
buyers in the market for Ice Cream Rob, Sam and
Sally. The individual demand for each of them is
the following
Robs Demand
Sams Demand
Sallys Demand
Markets Demand
To get the market demand we add the quantity
demanded of each consumer at a given price. For
example, when the price is 4 we add the QD for
Rob, Sam and Sally for that price (48618).



40
Individual and Market Demand
Graphically, in order to get the market demand we
add up the individual demand curve horizontally.
By adding the lines horizontally we obtain the
market demand. In the example below we consider
only two consumers to make it easier to see. The
red line represents the sum of the two individual
demand and therefore it is the market demand
Market demand
Individual B demand
Individual A demand
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Three ways to look at the market demand
Market Demand Equation the equation of the
market demand curve is the inverse demand
equation. Solving the inverse demand equation to
have QD on the left hand side we obtain the
market demand equation.
Market Demand
P
Inverse Market Demand Equation
P -2 QD 12
12
Slope-2
Solving the inverse demand equation for QD we
obtain the demand equation
Market Demand Equation
6
QD
QD -0.5 P 6
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Three ways to look at the market demand

• Similar to the individual demand we can see the
  market demand in three ways
• Market Demand Schedule table with the price and
  the quantity demanded in the market.
• Market Demand Curve the graphical representation
  of the market demand schedule.
• Market Demand Equation the equation of the
  market demand curve is the inverse demand
  equation. Solving the inverse demand equation to
  have QD on the left hand side we obtain the
  market demand equation.

43
Determinants of the Market Demand

• The determinants of the market demand are almost
  the same as the determinants of the individual
  demand with the addition of one more determinant.
• 1) Price of the good.
• 2) Income
• 3) Price of the related goods
• Price of substitutes
• Price of complements

4) Tastes 5) Expectations 6) Number of buyers
the number of buyers is the only determinant of
the market demand that is not a determinant of
the individual demand. If the number of buyers
increases the market demand will increase. On the
other hand, if the number of buyers goes down
market demand decreases. The market demand will
shift in the same way as the individual demand
when each of these determinants change. In other
words, the analysis we made for the individual
demand also applies to the market demand with
addition of the sixth determinant Number of
buyers