Derivation of a Market Area from a Supply / Demand Equilibrium
Figure A represents a conventional quantity / price relationship where the higher the price the less quantity being sold. Price P1 represents the market equilibrium where a quantity Q1 is being sold. A price P3 would involve no quantities being sold. Since consumers have to go to the market to acquire a product or use a service, distance has an impact on the quantity being sold. On figure B, the further from the selling point (market having a cost P1), the higher the price and the less quantity sold. At distance P3, quantities being sold are none. By drawing a circle from distance P3, isovector P3 (P2 is also an isovector) is obtained, which represents the market range. Therefore, the area circled by isovector P3 represents the market area of an activity located at P1, since beyond P3 no product or service is being sold.