Why We Add Individual Demand Curves Horizontally to Derive a Market Demand Curve
To understand why we add individual demand curves horizontally rather than vertically to derive a market demand curve, it is important to first grasp the concepts of individual demand and market demand. This article will delve into these concepts and explain the methodology of combining demand curves to achieve a more comprehensive view of consumer behavior in market analysis.
Individual Demand vs. Market Demand
Individual Demand Curve: This curve illustrates the quantity of a good that a single consumer is willing to purchase at various prices, reflecting their personal preferences and budget constraints.
Market Demand Curve: This curve represents the total quantity of a good that all consumers in the market are willing to purchase at various prices. It accumulates the demand from all individual consumers, giving a broader picture of the market's overall demand.
Horizontal Addition of Demand Curves
When we combine individual demand curves to derive a market demand curve, we do so horizontally for the following reasons:
Quantity at Each Price: For any given price, each individual consumer has a specific quantity they are willing to buy. To find the total quantity demanded in the market at that price, we sum the quantities demanded by all individuals.
Market Demand Calculation: If we consider a price ( P ):
Consumer A might demand ( Q_A ) at price ( P ).
Consumer B might demand ( Q_B ) at price ( P ).
The total market demand at price ( P ) is ( Q_{text{market}} Q_A Q_B ).
Vertical Addition Misconception
Adding individual demand curves vertically would imply summing the prices that individuals are willing to pay for the same quantity, which does not reflect how markets work. Each price point corresponds to different quantities from different consumers, not a single quantity across all consumers.
Conclusion
Adding individual demand curves horizontally provides the most accurate representation of market demand since it reflects the total quantity demanded by all consumers at each price level. This method offers a comprehensive picture of consumer behavior across multiple individuals, aligning with the principles of market dynamics.
Because individual quantity demanded has to be added to get market demand, that happens when individual demand curves are added horizontally. If they were added vertically, prices would be added, which is not meaningful. See the diagram below for a visual representation of this concept.