Deriving Market Demand
Exploration: How do various types of consumers combine to create a market demand? Does this impact marketing campaigns?

This interactive graph shows how a market demand curve is derived. This exercise also helps to demonstrate an equilibrium price and quantity given market demand and supply curves, as well as a change in equilibrium given a change in demand. This shows a market for skin lotion. Price is per bottle and quantity is number of bottles purchased per year. The first two demand curves represent two types of consumers, Type-A and Type-B. Read the Instructions in the graph and answer the following questions.

1. How is the law of demand reflected by the demand curves for Type-A and Type-B consumers?
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2. Press the Reset button so that there are 75 Type-A Consumers and 50 Type-B Consumers in the market. How many bottles of lotion are demanded per year by the market at a price of $6? at a price of $2? How is the market demand curve derived?
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3. Click on the Show Supply button. Given these market demand and supply curves, what is the current equilibrium price and quantity for this lotion?
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4. What happens to the market if skin moisturizing lotion becomes more popular among 40 of the 75 Type-A consumers? That is, 40 Type-A consumers become Type-B consumers. What is the effect on the equilibrium price and quantity of skin moisturizing lotion?
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5. What happens to the market if the number of consumers in the market increases? Assume there are 40 new consumers, 24 of whom are Type-A and 16 of whom are Type-B. What is the new equilibrium price and quantity now? (Be sure to click the Reset button in the graph before beginning.)
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6. Suppose a targeted marketing campaign increases consumption by current consumers such as illustrated in part d above and a general marketing campaign increases the number of consumers in the market such as illustrated in part e above. Assuming both marketing campaigns cost the same (and average costs of production do not rise), which marketing campaign is likely to result in greater profit for the company?
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