Answer to Question #208886 in Microeconomics for Himanshu Negi

Question

Why the market demand for input is not the simple horizontal summation of demand curve of the individual? Use diagrams.

Answer 1

Market demand gives the quantity (the sum of individual demands) that all market participants buy at each price. This is sometimes called the "horizontal summation of demand curve of the individual" since the sum exceeds the quantity at each price. However, market demand for input tends to be demand for resources (inputs) depending on the demand for products that these resources are able to produce. The company needs to invest when household needs the services or goods produced by a firm.