--%>
Assignment Help - homework help

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 : Resources and Products Flow Model I

    I have a problem in economics on Resources and Products Flow Model. Please help me in the following question. The eventual owners of all resources and products in the society are as follows: (i) households. (ii) Firms. (iii) The tax-paying public. (iv

    		•
  • Q : Market Prices signals I have a problem

    I have a problem in economics on Market Prices signals. Please help me in the following question. Market prices are the: (1) Signals among sellers and buyers. (2) Generally higher than the opportunity costs. (3) Set by the government regulations. (4)

    		•
  • Q : Occurrence of increase in supply in

    In short run, the increase in supply takes place whenever the: (1) Supply curve shifts upward and to left. (2) Preferences of consumers change in a positive direction. (3) Market price raise. (4) Amounts producers make accessible rise at each and every price. (5) Publ

    		•
  • Q : Limitation in Lorenz curve A Lorenz

    A Lorenz Curve cannot be used to demonstrate scientifically how the: (w) income is distributed among members of society. (x) wealth is distributed in between members of society. (y) taxes alter the distribution of income. (z) income must be distribute

    		•
  • Q : Problem regarding Labor Union Goals The

    The union goal of maximum employment would make most of the union members: (1) Happy as unemployment rates would be zero. (2) Happy since of the big union membership. (3) Unhappy as only a very low wage maximizes employment. (4) Unhappy as they don’t understand

    		•
  • Q : Economic profits by competitive

    Economic profits produce competitive pressures which cause: (w) each firm’s output to shrink during the short run. (x) an industry’s output to increase. (y) market prices to increase. (z) firms to leave an industry.

    Q : Tariffs Choose the right answer from

    Choose the right answer from following. Tariffs: A) may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). B) are also called import quotas. C) are excise taxes on goods exported abroad.

    		•
  • Q : Meritocracy in System of Distribution

    An emphasis onto socioeconomic mobility based upon equality of opportunity, independently of inheritances of land or else physical capital, which is a centerpiece of a system of distribution termed as: (1) meritocracy. (2) laissez faire capitalism. (3

    		•
  • Q : Problem of asymmetric information

    Provide the solution of this question. The problem of asymmetric information is that: A) neither health care buyers nor providers are well-informed. B) health care providers are well-informed, but buyers are not. C) the outcomes of many complex medical procedures cann

    		•
  • Q : Reduced effectiveness by pressure The

    The increased pace of globalization and the steady development of worldwide demands for petroleum-based products from 2002 have tended to decrease the: (w) derived demand for petroleum. (x) prices of gasoline and electricity. (y) pressures which had reduced OPEC's eff

    		•