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Unformatted text preview: Exam Thursday, Feb 4 •Will include material through 1/28 lecture •Chapter 4 NOT including section 4.6 •NO calculators •WILL post old exams Next Step: From 1 consumer to many • We can use indifference curves/optimality conditions to see how each consumer responds to price changes • Adding up quantity demanded across consumers at each price will give us MARKET demand curve Graphically: Horizontal Summing of demand P Q D1 D2 Graphically: Horizontal Summing of demand P Q Algebra: Summing of Demand Curves • Person 1: P = 30 – Qd • Person 2: P = 20 – 2Qd • Add quantities demanded at every price, so express Q as a function of P • Qd = 30 – P • Qd = 10 – (1/2)P P > 20, only demand from person 1 P Q 30 30 20 10 P > 20, only demand from person 1 P Q 30 30 20 10 • At P> $20, demand function is Qd = 30 – P • At P < $20, need to sum demand curves • Qd(total) = 30 – P + 10 – (1/2)P • Qd = 40 –(3/2)P • Total demand: Qd = 30 – P , P>$20 Qd = 40 – 3/2P, P <=$20 Now, add in supply curve • Total demand: Qd = 30 – P , P>$20 Qd = 40 – 3/2P, P <=$20 • Suppose Supply is given by Qs = (1/5)P Or P = 5Q What is equilibrium P, Q? • First, try lower segment of demand curve • 40 – (3/2)P = 1/5P • P = 23.5: BUT this segment is only for P <=20, so this is a contradiction • Try upper segment 30 – P = 1/5P P = 25, Q = 5 • More commonly: assume consumers are all alike • Demand function for 1 representative consumer • Market composed of 10,000 such consumers • Multiply: Q d *10000 • Ex: Market composed of 10,000 consumers, each with individual demand function given by: Qd = 10 – (1/2)P • Q d (market) = 100,000 – 5000P Demand Curves & Consumer...
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This note was uploaded on 02/27/2010 for the course ECN 40279 taught by Professor Annstevens during the Spring '10 term at UC Davis.
 Spring '10
 AnnStevens

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