Define market demand curve

The market demand curve derives from the summation of the individual demand curves of all consumers in the market.

Market Demand curve graph.


The market demand curve reflects market demand.

The market demand curve is flatter than the individual demand curves. It happens because when the price changes, the proportional change in market demand is more significant than the proportional change in individual demand.

At any given price, consumers may demand different quantities of goods, meaning that their elasticity of demand can change.
When working with the real markets, economists choose representative consumers and multiply their average demand by the number of consumers of a given product to get a graph of market demand.

Supply and demand curves meet at the equilibrium point when the demand for a product corresponds to its supply. Equilibrium point represents price (P) and quantity (Q) of equilibrium.

Excess Supply, Excess Demand and Equilibrium graphs.

There are only two possible situations of disequilibrium. In cases when the amount demanded exceeds the amount supplied, excess demand emerges. The opposite situation is called excess supply.

Prices then are gradually adjusted through various market mechanisms until they reach the equilibrium price.
As a rule, the demand curve reflects the inverse relationship between price and amount demanded and goes down. It illustrates the law of demand: the higher the price, the lower the amount demanded.

At the same time, the supply curve reflects the direct relationship between price and amount supplied and goes upward. It illustrates the law of supply: the higher the price, the higher the amount supplied.

Demand is usually affected by the non-price factors, such as consumer income, market capacity, prices and availability of substitute products, prices and availability of complementary products, tastes and preferences, specific factors (weather conditions, blackouts, riots, holidays, etc.), and expectations for future economic conditions.

Supply may be affected by the non-price factors like manufacturing costs, technical progress, prices for related products, the stability of legislation, specific factors, and expectations for future economic conditions.

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