No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Three: Demand 71 A final factor in determining demand is the size of the market. If that were to change dramatically, then demand would shift. Consider a baby boom. We all know that baby boomers are coming of age, and soon we will have many more elderly. What do you expect to happen to the demand curve for dentures when the size of our elderly population rises? Yes, demand for dentures will rise, along with complementary goods such as denture cleaners and adhesives. Not fun to think about, but true! FACTORS INFLUENCING DEMAND: 1. Income 2. Tastes and preferences 3. Expectations of future prices 4. Prices of related goods 5. Size of the market INDIVIDUAL VS. MARKET DEMAND Up until now, we’ve described demand in very general terms; we have not yet distinguished whose demand this is. We have highlighted why individual marginal utility ultimately drives demand, but we must say more on how a demand curve is derived, which will help us understand the market prices we see in our everyday lives. Consider three individuals: Megan, Tonia, and Javier, and their individual demands for AirPod Pros. Notice in Figure 3.4 and Table 3.1 that as the price for AirPod Pros drop, each of them will demand an equal or greater quantity. And while for simplicity’s sake I am using lines to describe demand, the actual demand curve does not have to be linear; it must simply slope downward. If our three are the only individuals in the market, we simply need to sum up their individual demand curves to arrive at a market demand curve. Price Megan Tonia Javier Market $200 1 2 0 3 $150 2 2 1 5 $100 2 3 1 6 $50 3 5 4 12 Table 3.1, Demand for AirPod Pros. P ($) Q (#) 10 5 50 100 150 200 Javier Megan Tonia Market Figure 3.4, Market Demand Curve for AirPod Pro. The overall market demand curve is derived by adding up the individual demand curves; in our example, from Javier, Megan, and Tonia. Note that the demand curves are vertical as we move from one price to the next. This is an artifact of how we added the data increments, but reflects what happens in the real world: you only want AirPod Pros in whole increments (i.e., you want 2 or 3 AirPod Pros, not 2.257 as the price changes). As the market gets larger and larger, both in terms of people and the quantity of AirPod Pros sold, the demand curve will become more smooth.