Everyone has some influence over the economy. When economists look at the individual decisions that people make and how these decisions influence market demand as a whole, the economists are studying microeconomics. When businesses look at microeconomics, they focus on both what individuals want and what the overall market wants.
Market Demand Defined
Market demand is the sum total of the goods and services that buyers demand. Many customers want to buy products, but can only afford to buy them at certain prices. The relationship between market demand and the market prices lead to the market demand curve.
Individual demand is the demand that a special person makes. The greater the number of individuals who want a product or service, the greater the overall market demand. Also, the fewer the number of individuals who demand a product or service, the more expensive the product or service will be.
Market demand usually increases when individuals earn higher incomes and are willing to spend the extra money on products and services. But for a particular product, market demand only increases if those who desire the product earn higher incomes. Also, if consumers are settling for lower-priced products, then a higher income could actually reduce market demand for the lower-priced product by causing consumers to buy higher-priced products.
Individuals might see products as complementary. For example, a recreational fisherman might like a particular soft drink. If the fisherman gets a raise or sees a drop in bait prices and decides to fish more, then he might also buy more of the soft drink to take with him on his fishing trip. Thus, the increase in individual demand for one product complements market demand for another product. But not all individuals like to drink soft drinks while fishing. They do need fishing hooks, however. For the market as a whole, bait and fishing hooks can be seen as complementary. Increases in demand for one product tends to also increase demand for the other.
Many of the factors that influence market demand also influence individual demand, such as prices of goods, income, taste and expectations. There will be an overall average demand for products that suit a particular taste. For example, people living in one suburb might prefer luxury cars, while those in another suburb might prefer SUVs. But individuals within a particular area might have unique tastes. For example, one family in the predominantly SUV area might instead drive a hybrid vehicle.