Chapter2

# Chapter2 - Linear Demand Pro.t Maximisation Chapter 2...

This preview shows pages 1–4. Sign up to view the full content.

Chapter 2 Evrim Dener SMU (SMU) 1 / 37 Linear Demand Simple assumption: demand is a straight line: linear demand Inverse demand: P = a bq Ordinary demand: q = a b 1 b P Parameters: a , b (SMU) 2 / 37 Individual Demand ± Market Demand Individual demand: Tells what quantity an individual consumer would choose to purchase at each price Market demand: Tells what quantity all consumers combined would choose to purchase at each price To obtain market demand horizontally sum individual demands: add up quantities (SMU) 3 / 37 Example: N Identical Consumers (SMU) 4 / 37

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Marginal Consumer Marginal consumer: A consumer who is just indi/erent between buying and not buying the good at a certain price Price = Maximum willingness to pay of the marginal consumer. (SMU) 5 ± 37 Inverse Demand For each unit measures maximum price marginal consumer willing to pay. (SMU) 6 ± 37 Continuous Quantity Demanded In introductory microeconomics, typically assume that quantity demanded is a continuous variable Continuous variable: possible values In aggregate, often millions of units sold Reasonable to approximate as continuous (SMU) 7 ± 37 Example: Market Demand for Cars P = 300 . 000 & 0 . 0338 Q (SMU) 8 ± 37
Discrete Quantity Demanded When considering some goods not reasonable to treat aggregate quantity as continuous Discrete variable: values (SMU) 9 / 37 Individual Demand For an individual consumer±s demand, often small number of units demand ²If so, NOT reasonable to approximate as continuous, must recognize as discrete (SMU) 10 / 37 Demand Elasticity Demand curve indicates quantity demanded at a given price How much demand changes as a result of price change? Measured by the slope of the demand curve

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 10

Chapter2 - Linear Demand Pro.t Maximisation Chapter 2...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online