ABSTRACT
The demand for a commodity is differentiated from a want in terms of society’s willingness and ability to pay for satisfying the want. Based on individual households’ demands for a single commodity (in Chapter 4), we determine in this chapter the total amount demanded for a commodity by all households (called market demand or aggregate demand). As we will see, market demand is the sum of individual household demands, assuming that individual household demands are independent of each other. For example, one individual’s demand for going to a volleyball game is independent of another individual going. However, we will explore cases called network externalities, where this independence assumption does not hold. As addressed in the appendix to this chapter, a field of economics that further relaxes the assumptions on household behavior is called behavioral economics. A behavioral economist will combine related disciplines, principally psychology, to investigate howconsidering alternative, possibly less restrictive, assumptions can enrich our ability to understand the household decision process. A behavioral economist’s goal and that of other economists is to improve on our understanding of markets and how prices are determined.
