--%>

Market demand function

The market  for good X consists  of 2 consumers. consumer  1',s demand  for good X is:

X1 :  15 - 3Px + 0.5PY + .02I1

I1 and I2 are incomes of consumer 1 and 2, respectively.  Px and Py are the prices of goods X and Y, respectively.

a. What is the equation  for the market  demand  function  for X? Graph the two individual demand curves and the market  demand  curve  for the case which  I1 : $2000, I2: $3000, and Py:$ 10.

b. Suppose Px rises  from $5 to $5.05. What is the market price elasticity of demand?

c. Suppose  income  is redistributed so that each consumer  has $2500. If Px: 5 and Py: 10, how much does the quantity of X demanded  change because  of the redistribution?

E

Expert

Verified

a) Equation for consumer 1: X1= 15-3Px + 0.5 Py +0.2I1

Equation for consumer2:  X2= 15-3Px + 0.5 Py + 0.2 I2

Market demand curve is  calculated by aggregating the individual demand curves.

So, By adding the two demand curves we get:  X*=30-6Px +Py + 0.2I1+ 0.2I2

Put the value of Py and I1 and I2.

X*= 30 -6Px + 10 + 0.2(2000) + 0.2(3000) is the market demand curve for the good X

Individual Demand curves will be:

X1= 15-3Px +5 + 400 or X1= 420-3Px
X2= 15-3Px+ 5 +600 or X2= 620-3Px
X*= 30-6Px + 10+ 1000 or X*= 1040-6Px

b. For market   price  elasticity we use market demand curve:

X*= 1040- 6Px

Elasticity:
dx/dp(p/x)=
dx/dp= -6
-6(5/1010)=-0.029

P= original price-which is 5(that is price before the price change)
X= orginal  quantity: quantity demanded at original price of 5= 1040-6(5)=1010
And dx/dP=slope of market demand curve

c. Now each consumer has 2500. So, Put the values In the market demand curve:

X*= 2040-6Px
If Px=6
Then X* demanded will be 2004
And Earlier it would be: X*= 1040-36= 1004
So the change in quantity demanded will be: 1000

   Related Questions in Microeconomics

  • Q : Typical pure competitor firm in industry

    When this firm is a typical pure competitor within this industry as in demonstrated figure, then the firm is: (i) making normal accounting profit. (ii) making zero economic profit. (iii) breaking even. (iv) into an industry within long run equilibrium

  • Q : Who tries to buy low in expectation for

    A person who tries to buy low within expectation of being capable to sell high later is: (w) profiteer. (x) speculator. (y) financial intermediary. (z) capital supplier. Hello guys I want your advice. Please recommend some views fo

  • Q : LEAST Liquidity in market The LEAST

    The LEAST liquid of the given assets is: (1) a corporation's capital. (2) savings accounts. (3) cash. (4) U.S. savings bonds. (5) checking accounts. Hey friends please give your opinion for the problem of E

  • Q : Determine competitive price of purely

    In this demonstrated figure purely competitive lumber mill’s generic 2×4s now sell for: (1) $3.60 each. (2) $3.00 each. (3) $2.70 each. (4) $2.40 each. (5) $2.10 each.

    Q : Interest rates of business investors in

    The interest rates business investors into economic capital should pay on a loan: (w) reflect the opportunity costs to society of funding one investment in place of another. (x) are relatively trivial investment costs by investors&rsq

  • Q : Present Value of a Perpetuity When the

    When the interest rate is 5%, in that case the present value of a perpetuity which pays $500 each year beginning a year by today equals: (1) $500. (2) $1000. (3) $2500. (4) $5000. (5) 10,000. Can s

  • Q : Demand for Labor-Monopsony Power When

    When wage discrimination is not probable for the first 40 workers this profit-maximizing organization hires, however it can wage discriminate perfectly whenever hiring all the subsequent workers, it hires a net of: (i) Forty workers at an average salary of $700 per we

  • Q : Annual economic profit When point e

    When point e corresponds to $9 per copy for Silver Screen DVDs, Nostalgia Corporation can produce annual economic profit of at mostly about: (i) $25 million. (ii) $35 million. (iii) $50 million. (iv) $75 million. (v) $100 million.

    Q : Changing in strategy and behaviour

    Within the kinked demand curve model, when one firm: (1) advertises better quality, its rivals will do nothing. (2) raises its price, its rivals will also increase prices. (3) increases its output level, when its rivals will do nothing. (4) lowers its

  • Q : Describing the problem of Moral Hazard

    When an NBA all-star bets in opposition to his team in games he plays after getting the money designated in his contract, he would be describing the problem of: (1) Default a version. (2) Over achievement. (3) Moral hazard. (4) Stupidity.

    Discover Q & A

    Leading Solution Library
    Avail More Than 1424494 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads
    No hassle, Instant Access
    Start Discovering

    18,76,764

    1923223
    Asked

    3,689

    Active Tutors

    1424494

    Questions
    Answered

    Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

    Submit Assignment

    ©TutorsGlobe All rights reserved 2022-2023.