How can you obtain a downward sloping market demand curve from a horizontal firm demand curve experiencing perfect competition? If you sum up individual demand horizontally for the firm at the given market price will market demad not still be horizontal?
Unlike supply, the industry-wide demand curve is NOT the sum of the demand curves faced by each individual producing firm. The industry-wide demand curve is the result of summing individual consumer's demands
To obtain a downward-sloping market demand curve from a horizontal firm demand curve experiencing perfect competition, we need to understand the concept of market demand and individual demand.
In perfect competition, each firm is a price taker, meaning that it has no control over the market price and can sell as much output as it desires at that price. As a result, the firm faces a perfectly elastic, or horizontal, demand curve because it can sell any quantity at the prevailing market price.
However, when we consider the market as a whole, the market demand curve is derived by horizontally summing up the individual demand curves of all consumers in the market. Each consumer has a different demand curve, reflecting their willingness and ability to buy at various prices.
When we horizontally sum the individual demand curves, the resulting market demand curve will most likely have a downward slope. This is because as the price decreases, more consumers are willing and able to purchase the good, leading to an increase in quantity demanded. Conversely, as the price increases, fewer consumers are willing and able to purchase the good, resulting in a decrease in quantity demanded.
Therefore, even though the firm's demand curve remains horizontal in perfect competition, the market demand curve is downward-sloping due to the aggregation of individual demand curves.