Three people have the following individual demand schedules...

Three people have the following individual demand schedules for Count Chocula cereal that show how many boxes each would purchase monthly at different prices:$$\begin{array}{cccc} \text { Price } & \text { Person 1 } & \text { Person 2 } & \text { Person 3 } \\ \hline \$ 5.00 & 0 & 1 & 2 \\ \$ 4.50 & 0 & 2 & 3 \\ \$ 4.00 & 0 & 3 & 4 \\ \$ 3.50 & 1 & 3 & 5 \end{array}$$ a. What is the market demand schedule for this cereal? (Assume that these three people are the only buyers.) Draw the market demand curve. b. Why might the three people have different demand schedules?

Three people have the following individual demand schedules for Count Chocula cereal that show how many boxes each would purchase monthly at different prices:$$\begin{array}{cccc}
\text { Price } & \text { Person 1 } & \text { Person 2 } & \text { Person 3 } \\
\hline \$ 5.00 & 0 & 1 & 2 \\
\$ 4.50 & 0 & 2 & 3 \\
\$ 4.00 & 0 & 3 & 4 \\
\$ 3.50 & 1 & 3 & 5
\end{array}$$
a. What is the market demand schedule for this cereal? (Assume that these three people are the only buyers.) Draw the market demand curve.
b. Why might the three people have different demand schedules?

Key Concepts

Consumer Heterogeneity

Consumer heterogeneity refers to the differences among individuals in their preferences, incomes, and purchase behaviors, which result in varied demand schedules. These differences explain why different consumers might purchase different quantities at the same price, leading to variation in their individual demand curves.

Demand Curve

The demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded, typically sloping downward from left to right. It visually illustrates how, as the price decreases, the quantity demanded generally increases, reflecting the law of demand.

Aggregation

Aggregation in economics involves summing the individual behaviors or functions, such as demand schedules, to analyze the overall market behavior. This concept is crucial when constructing the market demand schedule from the individual demand schedules, allowing for comprehensive market analysis.

Individual Demand Schedule

An individual demand schedule is a table or chart that shows how many units of a good a single consumer is willing and able to purchase at various prices. It reflects the consumer's preferences, income, and perceived value of the good, capturing the relationship between the price and the quantity demanded by that individual.

Market Demand Schedule

A market demand schedule is an aggregation of the individual demand schedules of all consumers in the market. It shows the total quantity of a good that all consumers are willing and able to purchase at each price level. This aggregation helps in understanding overall market behavior and is fundamental in determining market equilibrium.

Transcript

00:01 This table gives us the individual demand schedules for three different people for the same good.

00:05 So, for example, if the good was priced at $4 .50, how much of it does person two want? well, at $4 .50, person two would want two units of that good.

00:19 Now we're asked to figure out what the market demand schedule is given the individual demand schedules.

00:26 So the way we would do it is we would take a look at each of the different price levels and ask ourselves, how much does the market want? so, for instance, at $5, the market wants three units of the goods.

00:40 The reason we know that is, well, person one does not want any of the goods.

00:45 Person two wants one unit.

00:47 Person three wants two units.

00:49 And so zero plus one plus two gives us three.

00:53 Here we're making the assumption that person one, two, and three make up the entire market.

00:58 So moving to $4 .50.

01:01 If person 1 wants none of the good when it's priced at 450, person 2 wants 2 units of the good, and person 3 wants 3 units of the good, again, when it's priced at 450, then the total market demand at that price would be given by the quantity of 5.

01:21 In the same way, if the price is $4, then the market demand would be 7.

01:27 If the price is 350, the market demand would be, 9.

01:37 Okay, so we have now the market demand schedule.

01:48 Now let's see if we can draw the market demand curve.

01:52 So the way we're going to do it is we're going to do it on an x and y axis, where on the x -axis we have the quantity on the y -axis, we have the price.

02:06 And so, so let's see, our prices are $350, $4 .50, and $5.

02:15 So let's say this is $350, $4, $450, and $5.

02:26 So we're going to have the y origin at 3 here.

02:31 Now the quantity goes from 3 all the way to 9.

02:34 So maybe we could do this in 2s, maybe.

02:39 2, 4, 6, 8, 10.

02:41 I think so.

02:41 0, 2, 4, 6, 8, 10.

02:49 So, when the price is $5, the market demand schedule tells us that only 3 units are demanded...