Explain how a demand curve in a market is derived from individual demand curves by deriving a demand curve for a consumer?

Question

What does this question mean and how do I solve it?

Answer 1

Hi, this question is essentially asking how you would create a demand curve for one individual consumer and then extrapolating that knowledge to create demand curve for a population as a whole.

Remember that when creating a demand curve, we hold everything fixed except for price and quantity demanded of a good. Now we assume that a person is looking an some item, maybe something small like a bag of chips at the grocery store. How many bags of chips would the person buy if the price was different, say if it cost $2 per bag, $5 per bag, and $10 per bag? Well, we could assume at the lower price, they may buy several bags. At the highest price, they would buy very few. If we graphed it out, we would create a downward sloping demand curve, where price and quantity demanded are negatively correlated.

This is only the demand curve based off one individual's preference, but this same logic can be applied to the entire population. Since this is the logical response for one person, many people would probably engage in the same decision-making. If we added up the possible demand curves for every individual, it would create the demand curve for the society, and we may expect to mirror the demand curve we sketched for that original individual.