--%>
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 : Problem regarding to tax wedges in

    In equilibrium, a tax upon a good tends to because of the: (1) supply to exceed the demand. (2) quantity supplied to exceed the quantity demanded. (3) demand prices of consumers to exceed the supply prices of sellers. (4) competitive

    		•
  • Q : Demand when price of good or resource

    When the price of a good or resource drops, the demands for: (i) That good or resource raise. (ii) Complementary goods or resources reduce. (iii) Substitute goods or resources reduce. (iv) Luxury goods and inferior resources drop.

  • Q : Concept of Production Possibilities

    The Production possibilities frontiers describe the concepts of: (1) A trade-off between inflation and unemployment. (2) Positive economics versus the normative economics. (3) Scarcity, opportunity costs, and reducing returns. (4) Absolute advantages

    		•
  • Q : Law of Equal Marginal Advantage I have

    I have a problem in economics on Law of Equal Marginal Advantage. Please help me in the following question. The very last cents spent on each and every good should give up equivalent subjective profits according to the principle of: (i) Subjective pre

    		•
  • Q : Economic project Hello, Would you

    Hello, Would you please find a project in managerial economic in the attachment. Please tell me in which price you will be solve it and when you complete it? NOTE: I attach tow files (one is the project and another as the sample for it) I choose Starbucks company for the project. A Special N

    		•
  • Q : Types of output for producing goods

    Kinds of output subsequently used to generate other goods are termed as: (w) land. (x) labor. (y) capital. (z) primary resources. Hey friends please give your opinion for the problem of Eco

    		•
  • Q : Determine price of unitary price

    St. Valentine’s Day software is currently going in version of 6.0. At this point on the demand curve where the price elasticity of demand is unitary, there the price would be approximately: (i) $20, resulting in roughly 16 milli

    		•
  • Q : Comparative advantage in making food

    When Wilma can make a brontosaurus burger in 10 min and a cactus cooler in 5, whereas Betty can make the burger in 8 min and the cactus cooler in 3. Then find out the right option from the above: (1) Betty consists of a comparative disadvantage in the coolers and a co

    		•
  • Q : Output and equilibrium price Hybrid

    Hybrid Roses is the merely florist in 60 miles of Presidio, Texas. Often, lots of Texans are romantics at heart. Total cost curve of Hybrid is below the demand curve this faces. At its output and equilibrium price, Hybrid will produce

    		•
  • Q : Define normal goods Normal goods:

    Normal goods: Normal goods are such goods whose demand increases with the increase in income of consumer.

    		•