Market demand curve

For background information, see demand curve

Definition

The market demand curve for a good, service, or commodity is defined with the following backdrop:

The specific good, service, or commodity.
A unit for measuring the quantity of that commodity.
A unit for measuring price.
A convention on whether sales taxes are included in the stated price.
The market: A certain set of economic actors who are the potential buyers of that commodity.
A time frame within which the demand is measured.
An economic backdrop that includes all the determinants of demand other than the unit price of that commodity.

The market demand curve is a curve drawn with:

The vertical axis is the price axis, measuring the price per unit of the commodity.
The horizontal axis is the quantity axis, measuring the quantity of the commodity demanded in total by all the economic actors chosen above.

Obtaining the market demand curve from individual demand curves

The term individual demand curve is used to describe the demand curve for a single economic actor who is part of the market.

The market demand curve is obtained by aggregating (or adding up) the individual demand curves. With the usual way demand curves are drawn, this addition is done horizontally, i.e., for each fixed price (vertical) coordinate, the values of the quantity (horizontal) coordinates for all the economic actors are added.

If we assume that the individual demand curve for each economic actor represents, for each price, the optimal (utility-maximizing) quantity to buy at that price, then the market demand curve represents the optimal quantity for all the economic actors together to buy at that price.

Public goods analysis

For public goods (i.e., non-rival goods that are also non-excludable goods) the analogous analysis is done differently. Instead of adding the (analogues of) individual demand curves horizontally, the curves are added vertically. In other words, for a fixed quantity (horizontal) coordinate, the values of the "price" (vertical) coordinates for all the economic actors are added.

The reason for the difference are explained below:

Why we do not aggregate quantity: Due to the non-rival good nature, the same quantity of the good can be used by everybody without affecting the quantity accessible to others. Thus, to provide a certain quantity to each economic actor, it suffices to provide the same quantity to all.
Why we do aggregate price: We are interested in the total benefit of provision rather than the unit price (which is what market demand curves focus on). This is because, due to the non-excludable good nature, the idea is not to sell the good per unit at a unit price, but rather to determine the total benefit and then compare it against the price.