Page 97 - Krugmans Economics for AP Text Book_Neat

beans on October 6, 2006, would stock up on Starbucks coffee beans before
An individual demand curve illustrates
that date.
the relationship between quantity demanded
Expected changes in future income can also lead to changes in demand: if you ex-
and price for an individual consumer.
pect your income to rise in the future, you will typically borrow today and increase your
demand for certain goods; and if you expect your income to fall in the future, you are
likely to save today and reduce your demand for some goods. Section 2 Supply and Demand
Changes in the Number of Consumers As we’ve already noted, one of the reasons for
rising coffee demand between 2002 and 2006 was a growing world population. Because
of population growth, overall demand for coffee would have risen even if each individ-
ual coffee-drinker’s demand for coffee had remained unchanged.
Let’s introduce a new concept: the individual demand curve, which shows the rela-
tionship between quantity demanded and price for an individual consumer. For exam-
ple, suppose that Darla is a consumer of coffee beans and that panel (a) of Figure 5.5
shows how many pounds of coffee beans she will buy per year at any given price per
pound. Then D Darla is Darla’s individual demand curve.

figure 5.5 Individual Demand Curves and the Market Demand Curve

(a) Darla’s Individual (b) Dino’s Individual
Demand Curve Demand Curve (c) Market Demand Curve
Price of Price of Price of
coffee coffee coffee
beans beans beans
(per pound) (per pound) (per pound)
$2 $2 $2

D Market
1 1 1

D Darla D Dino

0 20 30 0 10 20 0 30 40 50
Quantity of coffee beans Quantity of coffee beans Quantity of coffee beans
(pounds) (pounds) (pounds)

Darla and Dino are the only two consumers of coffee beans in the shows the quantity of coffee demanded by all consumers at any
market. Panel (a) shows Darla’s individual demand curve: the number given price, is shown in panel (c). The market demand curve is the
of pounds of coffee beans she will buy per year at any given price. horizontal sum of the individual demand curves of all consumers. In
Panel (b) shows Dino’s individual demand curve. Given that Darla and this case, at any given price, the quantity demanded by the market is
Dino are the only two consumers, the market demand curve, which the sum of the quantities demanded by Darla and Dino.

The market demand curve shows how the combined quantity demanded by all con-
sumers depends on the market price of that good. (Most of the time, when economists
refer to the demand curve, they mean the market demand curve.) The market demand
curve is the horizontal sum of the individual demand curves of all consumers in that
market. To see what we mean by the term horizontal sum, assume for a moment that
there are only two consumers of coffee, Darla and Dino. Dino’s individual demand
curve, D Dino , is shown in panel (b). Panel (c) shows the market demand curve. At any
given price, the quantity demanded by the market is the sum of the quantities de-
manded by Darla and Dino. For example, at a price of $2 per pound, Darla demands

module 5 Supply and Demand: Introduction and Demand 55