So far, we have confined our discussion to the demand patterns of individual customers. But from the point of view of a business unit, total market demand of a product is more relevant, since it determines production capacity and affects cost structure of firms.
Total market demand of any product is the sum total of the individual demand of all consumers for a particular product. For the sake of simplicity, assume that there are only two buyers (say, A and B) for a product.
Here the market demand for that product is the sum total of the quantities demanded by A and B. If we consider that at a price of Rs.15 per unit, buyers A and B purchase 7 units and 10 units respectively, then market demand for the product at Rs. 15 per unit is (7 units + 10 units or,) 17 units.
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The relation between individual demand and market demand is represented in figure 3.4. For buyer A, the demand curve is D1D1, which shows that 7 units will be demanded at Rs. 15 per unit. Similarly, for buyer B, the demand curve is D2D2, which shows that when the price of the product is Rs. 15 per unit, he buys 7 units of that product.
Hence, the total market demand for the product at the price of Rs. 15 per unit is represented by the sum of the individual quantities demanded by buyers A and B. Thus, market demand curve at a particular price is the horizontal summation of the individual demand curves of all the customers. By ‘horizontal summation’ we mean, the sum of the horizontal distances of the individual demand curves from the vertical axes.