Market demand curve

At a given price, the sum of all the consumers demands gives the market demand for the particular product at that price. If all the consumer demand functions were known, they could be added to give the total market demand function. The total market demand curve is a plot of price p versus total amount of a given product required by all consumers Q. This function usually has a negative slope the lower the price, the greater the quantity demanded. 

It is impractical to build up a total market demand curve for a product by estimating each individual consumer demand and then adding these demands. However, a qualitative understanding of utility and elasticities combined with statistical analysis of past market behavior, projected consumer incomes, and sales of major items does permit total demand for a particular product to be estimated. The ability to arrive at such an estimate is a crucial step in projecting the profitability of a business venture in the CPI. Two approaches may be used to derive a total market demand curve. 

While he was chairman of General Motors Corporation, John Smith was much more concerned with the quantity of cars that would be demanded by the entire national market than with the quantity of cars that an individual would purchase in the next year [5], Part of the marketing task is to attempt to predict what this quantity demanded by the nation will be. The demand side is usually represented by a market demand schedule or table that shows the quantity of goods that will be purchased at a particular price. From the market demand table, a market demand curve is established. This is basically a price in some currency versus the quantity demanded in millions of units per year. (Again, Figure 1.3 is used for demonstration only.)... 

In short, the imperfections of the pharmaceutical market cause (a) less price sensitivity on the demand side, (b) a certain amount of market power on the supply side, and (c) demand curves that do not reflect the true social benefit. Demand for pharmaceuticals is greater and less price-elastic than it should be. The reason for this is that consumers have little price sensitivity, especially under insurance coverage. 

The concept of the producer cash cost curve, that aligns and ranks producers in ascending order based on their cash costs of production and the intersection of which with market demand identifies the marginal - and therefore price-setting -producer, is universally known in commodity industries and requires no further explanation here. 

For a monopolist (N = 1) facing a constant elasticity demand curve, the cost pass-through rule is thus e / (e + 1), which corresponds to that found by Bulow and Pfleiderer (1983). Note that because e < -1 for a monopolist, isoelastic demand therefore implies cost pass-through of more than 100% of any price change, and the pass-through would decline towards 100% for more competitive markets. 

A simple theoretical model will help us understand how the two allocation methods differ. Let us take a set of N homogeneous firms competing under Cournot competition with a linear demand curve on the goods market. These firms choose an output and an abatement level in order to maximize their profit ... 

The stock price of a company is the result of short term clearing of a supply-demand situation on the stock market, and is influenced by day to day fluctuations as in other market situations, the price and the quantity sold are determined by the slope of the supply and demand curves. 

For example, if the demand curve shifts to D rather than D , market price will rise to P . If the supply shift from S to S is small enough, producers could thus actually see an increase in their quasi-rents. Qualitative results are unchanged, however alterations in producer quasi-rents and consumer surplus result from the pollution-caused changes in the two sectors. These two examples serve to illustrate the issues of concern here consumers and producers can bear very different economic gains or losses depending on the relative shifts of the demand and supply functions. Moreover, the distribution of these economic consequences can differ drastically with the slope of the demand function relative to the slope of the supply function. 

A typical supply-demand situation for an industry in which there is perfect competition is qualitatively illustrated in Figure 2.5a. The supply and demand curves intersect at an equilibrium price, representing a stable situation in which supply equals demand. If supply temporarily exceeds the equilibrium value, the market price will have to be lowered to sell off any excess product (step 1 in Figure 2.5b). This lowered price in turn will cause production Q to decrease in the next time period (step 2). A decrease in Q below the equilibrium point will cause a shortage and induce the price to rise (step 3), which will cause total production to increase in the next period (step 4). But this increase will in turn cause a drop in demand. This postulated cobweb process will continue until the equilibrium is reestablished. The adjustment process requires the existence of ... 

Monopoly. In a monopolistic situation one firm supplies all of a product q = Q. The firm also sets the price p, and the total market demand function provides the Q in response. Thus, dn/dQ is not zero in Eq. (2.23). One needs the function relating p and q to determine the optimum p for maximizing profits. To illustrate the operation of the monopoly firm, we assume the same total cost function as before but assume that for some reason all firms but one have dropped out of business. We also assume the following relationship for the demand curve ... 

The simple theory predicts that the market clears at the intersection of the supply and demand curves, as in Figure 8.11. Where the demand curves intersect... 

The downward slope of the curve indicates that demand increases as the price falls. However, this curve is shifted by certain factors such as taste of the customer. For instance, if the environmental imperative is legislated to the automobile manufacturer and the increasing desire to go green is present, then the demand will shift to the left. If the customer s awareness around global warming and environmental concerns manifests itself by a preference for a hybrid or electric vehicle over a 13-mpg, SUV, the market demand will shift as in Figure 1.4. 

To find the share of the open market captured by a new fuel in any particular year, the equilibrium market share and dynamic market response curve are multiplied. This is done on an annual basis, resulting in a dynamic market share for the new product that varies with time. The actual biomass product demand is then found as a function of time by applying the dynamic market share to estimates of the size of the market that is available to the new product. 

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