Question

Market demand curve is a horizontal summation of individual demand curves. Explain diagrammatically.

Answer 1

The market demand curve can be drawn by aggregating all the individual demand curves. It is the horizontal summation of the demand curves of all the households. 

The quantity demanded is shown on the X-axis and price on the Y-axis. In Panels (i) and (ii) of the diagram, the demand curve of consumer 'A' and the demand curve of consumer 'B' are shown as DDA and DDB, respectively. In Panel (iii), we have drawn the market demand curve DD_M by aggregating the individual demand curves of the two households DD_A and DD_B. Market demand curve, like the individual demand curve, slopes downwards to the right, indicating an inverse relationship between the price and the quantity demanded. We have constructed the market demand curve on the assumption that the entire market consists of two consumers only. However, the same analysis would be applicable regardless of the number of consumers.