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Chapter 3: Q1. (page 65)

Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves?

Short Answer

Expert verified

The law of demand explains that the quantity demanded for a good and its price move in the opposite directions.

The demand curve follows the negative association between the quantity demanded and the price, which makes it slope downward.

The market demand curve is derived by horizontally adding the individual demand curves at each price.

Step by step solution

01

Law of demand 

The law of demand shows how the price and quantity demanded of a good are related. It shows how the quantity demanded negatively responds to a change in the price of a good and vice versa. For example, an increase in the price of ice cream decreases its quantity demanded.

02

Reason for the downward sloping demand curve

The demand curve follows the demand law, which implies that a consumer will increase the consumption of a good if its price decreases and decrease the consumption if the price increases.

For example, if the price of ice cream falls from $6 to $4, the quantity demanded will increase from 10 units to 15 units. These points are shown in the below downward sloping demand curve.

03

Deriving market demand curve from individual demand curves

The market demand curve shows the total quantity demanded by all the Individuals present in a good or service market. It is derived by adding up the individual demand curves horizontally, showing the total quantity demanded (market demand) at different prices.

For example, at a $4 price, person A demands 10 units, and person B demands 5 units of a good. The total market demand is 15 units (=10+5) when the price is $4.


Thus, we can horizontally add the individual demand curves DAand DBat all prices and get the whole market demand curve DA+DB.

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Most popular questions from this chapter

Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.

Refer to the following expanded table from review question 8.

a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers.

b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price P and equilibrium quantity Q

c. How big is the surplus or shortage at \(3.40? At \)4.90? How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price? 30 cents lower than the equilibrium price?

Thousands
of bushels demanded
Price per bushel ($)
Thousands of bushels supplied
853.4072
803.7073
754.0075
704.3077
654.6079
604.9081

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown in the following table.

a. Fill in the missing values.

b. Which buyer demands the least at a price of \(5? The most at a price of \)7?

c. Which buyer’s quantity demanded increases the most when the price decreases from \(7 to \)6?

d. In which direction would the market demand curve shift if Tex withdrew from the market? What would happen if Dex doubled his purchases at each possible price?

e. Suppose that at a price of \(6, the total quantity demanded increases from 19 to 38. Is this a “change in the quantity demanded” or a “change in demand?” Explain.


Individual Quantities Demanded

Price Per CandyTex
Dex
Rex
Total Quantity Demanded
\)83+1+0=-
\(78+2+-=12
\)6-+3+4=19
\(517+-+6=27
\)423+5+8=-

Explain the law of supply. Why does the supply curve slope upward? How is the market supply curve derived from the supply curves of individual producers?

A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price.

a. less than

b. equal to

c. greater than
See all solutions

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