Introduction
The market is a vast concept. The customer is said to be the king of the market as the wants and the needs of the customer determine the demand in the market. Whatever the customers desire to purchase, that purchase will automatically increase demand. But every desire cannot become a demand as there are reasons behind that. Only those desires or wishes are known as actual demand for which the consumer is ready to spend a part of their income. This demand can be divided into two categories as individual demand and market demand. Both these demands hold their differences and cannot be regarded as one.
Individual demand vs Market demand
An individual demand constitutes the demand of one or a single individual. The market demand comprises the demand of all individuals as a whole. As much as individual demand is a narrower concept, market demand is a broader concept. Market demand, a determining element, falls under individual demand. A single individual can impact the market demand significantly, especially if they are a high-spending consumer or a trendsetter, thus blurring the distinction between individual and market demand. Individual demand does not have any impact on market demand. A possible observation can be regarding the law of demand in both individual and market demand.
Difference between individual demand and market demand in tabular form
Parameters of comparisonIndividual demand market demand
MeaningIndividual demand refers to the demand of a single buyer. Market demand, on the other side, includes the collective demand of all individual's demands.
ImportanceIt pays attention to the single individual. It takes care of the whole market, not a single buyer.
Assumption It assumes that a single person can affect the demand in the market while a single person's demand cannot affect the market demand.
Demand curveThe demand curve slopes downwards, and the curve is relatively steeper. The market demand curve is inverse to the price and the quantity demanded, resulting in a flatter demand curve.
Law of demandThe law of demand is not appropriate in the individual demand schedule. Market demand always follows the law of demand.
What is Individual demand?
An individual demand means the demand of a consumer who is the only buyer or consumer of a commodity. In short, the goods or services demanded by a single individual are known as what is called individual demand. That individual buyer of the commodity is ready to purchase the desired goods and services at the given price of the products.
The buyer willingly pays the price for the demanded items. Let's take an illustration to understand individual demand. Suppose a person purchase flour and edible oil in a month. The quantity demanded of flour and edible oil by the individual in a month at a given price will be termed the individual demand. As the individual is demanding flour and oil, and he is willing to pay the price for these goods. Therefore, individual demand refers to the quantity of goods or services that a single consumer is willing and able to purchase at a given price. It is important to note that individual demand is influenced by factors such as income, preferences, and the availability of substitute products. Understanding individual demand is crucial for businesses to determine their pricing strategies and tailor their marketing efforts to specific consumer segments.
The individual demand further constitutes the individual demand schedule.
The individual demand schedule demonstrates the individual's demand in the market at a particular price for a specific quantity. It will show different quantities of goods and services that the end user can buy at different prices. The demand curve is the graphical representation that shows the relation between price and the quantity demanded. The slope of the demand curve for an individual demand curve will be facing downwards, and it will be steeper. This statement assumes that the individual's demand curve will always have a steep downward slope, although this may not be true for all individuals as different people may have different preferences and behaviors.
Various determinants are related in one way or another to the individual's demand which is as follows.
Own the price of the commodity.
It follows the law of demand. The law of demand states that there's an inversed relationship between own price of the commodity and the quantity demanded by the consumer. If the cost of the commodity rises, it will lead to a contraction in demand. Similarly, the decrease in the number of goods will result in the expansion of the demand curve.
Cost of related goods
Changes in the selling cost of related goods will also affect individual demand. These goods are of the following types.
Substitute goods
These goods are alternatives for one another. If the price of a product goes up, the individuals will immediately shift toward the competitor's products. For example, the increase in the price of Coca-cola will lead to a rise in the demand for the competitor brand Pepsi, as Pepsi and Coca-cola are substitutes for each other.
Complementary goods
Complementary goods are those goods that are bought together. These goods complete each other and cannot be consumed alone—for example, pen and ink. Without ink, only the pen is of no use, and vice-versa. Pen and ink are used together. If the price of one good increases, the demand for the other good will fall.
Income of the consumer
Income plays a vital role as the demand for any product will increase with a rise in the buyer's income. Likewise, the demand for a product or service will decrease in the market with a fall in the level of income of the consumer. For instance, individual purchases inferior quality products and services, but if the income of the consumer rises, then the consumer will automatically shift towards good quality commodities.
What is Market Demand?
Market demand shows the collective demand of all the buyers or consumers who are ready to purchase at a given price and quantity and at a given time. In layman terms, market demand is the combination of all the individual's demands. For example, if the market demand for organic food increases, it means that there is an overall increase in the demand of all individuals whomsoever willing to pay a certain price for organic food. This can be due to various factors such as health consciousness, environmental concerns, or even income levels.
Similarly, the market demand curve will be formed by the combination of the individual's demand curve. The curve will be facing downwards, representing the inverse relationship between the own price of goods and services and the quantity demanded by the consumer at that given price. The demand curve will be flatter for the market demand.
Let's try to understand market demand with the help of an illustration
There are X and Y consumers of products in the market. The price is rupee 2 per unit. The demand for a product by X is six units, whereas the demand for a product by Y is 4 units.
So, when we combine the market demand of consumers X and Y, we will get the market demand.
Market demand= 6 units of X + 4 units of Y
= 10 units
The market demand will be ten units when the prevailing price of a commodity is rupee 2 per unit.
The market demand can be further classified into a market demand schedule precisely like the individual demand schedule.
A market demand schedule comprises the sum of all the individual demand schedules. Thus, the market demand schedule depicts the quantity demanded at a specified price by each consumer at that particular point in time. With the bits of help of the demand schedule, the demand curve is determined. For a market demand, the curve will be flatter as compared with the individual demand curve. The reason for a flattering curve is that the summation of all the individual demands makes the curve flatter.
Market demand is affected by various determinants. Some of these are as follows:
Number of buyers or consumers
A single individual cannot form a market. For a market to come into existence, there needs to be a large number of buyers. These buyers determine a market for several commodities. When the number of buyers increases, it affects the demand for a product in the market. If the number of users of laptops increases, then it will create an increase in the demand for the laptop. There will be a significant rise in the product and demand for the laptops. The larger the number of people, the greater the demand for the product.
Income distribution
Income is essential for acquiring goods and services. There will be less demand in the market if money is dispersed unevenly. Similarly, if income is distributed equally, then demand will undoubtedly increase.
If the increased income is in a few hands, such as rich people, then the demand will be less as it will be from these groups only. An increase in the number of buyers and equal distribution of income can lead to a rise in demand for a product, while an uneven distribution of income can result in a decrease in demand. Understanding these factors is crucial for businesses to make informed decisions about their marketing and pricing strategies.
Seasonal changes
Seasonal changes also affect the market demand as the Indian continent experiences all kinds of weather. In some parts of the country, winter-related goods may be in high demand, whereas in the other part of the country, summer goods and services may be in high demand. So seasonal changes must be taken into account while calculating the market demand.
Economic changes
The economy may face recession, depression, and inflation. These are the phases of an economy that force the consumers to increase or decrease the demand in the market. A consumer's willingness to purchase a particular product depends on the money a consumer earns. During the inflation, they will try to curb their desire to have a product or service.
This is because the prices of goods and services tend to increase during inflation, making it difficult for consumers to afford them. On the other hand, during a recession or depression, consumers tend to reduce their spending due to a decrease in their income or job loss. This can lead to a decline in the demand for goods and services, harming the market. Therefore, economic changes play a crucial role in determining market demand and should be carefully analyzed before making any business decisions.
Taste and preferences
With the change in time, the taste and preferences of the buyers also change. They develop new preferences following the new varieties flowing in the market. These characteristics possess an enormous effect on market demand. The products should be customized according to the Changing nature of the customers.
Advertising and marketing
These two terms have a lot of clout in the market. Advertising and marketing the goods in the right manner may influence everything about the market environment. Through advertising, the consumer segment can be expanded. If marketing is done properly, new buyers of the product can be developed. It will result in a beneficial consequence with a rise in market demand. For example, a company that produces skincare products can use advertising and marketing techniques to target different age groups and skin types. By customizing their advertising campaigns and product formulations to meet the changing needs of their customers, they can expand their customer base and increase demand for their products. This can lead to increased sales and revenue for the company.
Difference between individual demand and market demand in points
- The individual demand is the demand which takes into account the demand of a single individual. While market demand is that demand which takes into account the demand of all the consumers of the market.
- Individual demand is a narrower concept as it's part of the market demand. Whereas market demand is a broader concept and is formed by the combination of all the individual demands in the market.
- In the individual demand, it is assumed that a single individual can affect the demand, whereas, in the market demand, a single individual cannot change or impact the demand in the market.
- The availability of substitute and complementary products affects the behavior of individuals in demand for a product. Whereas along with the substitute product income of a consumer, their taste and preferences and budget of the consumer also help in the determination of the market demand.
- Microeconomics, which emphasizes the significance of an individual's conduct, covers the topic of individual demand. On the other hand, the combination of individual demand leads to market demand, and this topic is covered by macroeconomics, which examines the actions of all of the market's customers.
- The quantity that a single customer would demand at a given price is shown by the demand curve for individual demand. The total quantity demanded at a specific price in the market is shown by the demand curve of the market. The market demand graph represents the average of all individual demand curves.
Conclusion
This explanation is correct and provides a clear distinction between microeconomics and macroeconomics in terms of individual demand and market demand.
Given everything discussed thus far, it is reasonable to conclude that the two most vital factors in economics are individual demand and market demand. It has to be done to study both demands and must be avoided at all costs. All the elements necessary for market demand cannot be applied to individual demand, given that the desire of an individual is very different from market demand.
Every time we attempt to get to the bottom of the market demand, we must first consider each individual's demand and requirements; Through this, we will be able to determine market demand once all individual demands have been calculated and added up.
