What this lesson teaches
I can explain that market demand adds up the demand of every buyer.
Syllabus 8843, 2.1.2(a). Demand and Supply Analysis and its Applications: Market demand as a summation of individual demand
I can explain that market supply adds up the supply of every seller.
Syllabus 8843, 2.1.2(b). Demand and Supply Analysis and its Applications: Market supply as a summation of individual supply
Make a guess
Thousands of students would love a $2,000 gaming laptop but have only their pocket money. Are they part of the demand for that laptop at $2,000?
- Yes, because they may save up and buy it one day.
- Yes. Demand measures how much people want a good.
- No. Demand counts only buyers willing and able to pay.
Show the answer
No. Demand counts only buyers willing and able to pay.
Wanting the laptop is not enough. Without the $2,000, these students do not add to quantity demanded at that price.
Demand is what buyers are willing and able to buy; supply is what sellers are willing and able to sell.
Demand is the quantity of a good buyers are willing and able to buy at each price, over a period of time. Both parts matter. Wanting a $3,000 laptop is not demand if you cannot pay for it.
Supply is the quantity sellers are willing and able to offer at each price, over a period of time.
The demand curve slopes down: at a lower price, people buy more. The supply curve slopes up: at a higher price, selling becomes more worthwhile, so firms offer more.
Always define the market first: which good, where, and over what period. "The market for chicken rice in Singapore, per week" is a market. "Food" is not.
- Demand
- Quantity buyers are willing and able to buy at each price, over a period.
- Supply
- Quantity sellers are willing and able to sell at each price, over a period.
- Define the market
- Name the good, the place and the period.
Worked example: Is this demand?
Three students look at a $5 plate of chicken rice at a hawker centre.
- Aisha wants it and has $5 to spend: she is part of demand at $5.
- Ben wants it but has only $3 left: he is not part of demand at $5, though he may be at $3.
- Chloe has $10 but is not hungry: she is not part of demand either. Demand needs both willingness and ability to pay.
Watch out for this
Demand is how much people want something.
Wanting is not enough. Demand counts only buyers who are both willing and able to pay at that price.
Check your understanding
Which of these is part of the demand for bubble tea at $4 a cup?
- A student who wants a cup at $4 but has only $2 to spend.
- A shop that sells cups at $4 and wants to sell more of them.
- A student who wants a cup and has $4 to spend.
Show the answer
A student who wants a cup and has $4 to spend.
Yes. Demand needs both the wish to buy and the money to pay at that price.