15. Market Demand - Solutions

15. Market Demand - Solutions - Chapter 15 NAME Market...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 15 NAME Market Demand Introduction. Some problems in this chapter will ask you to construct the market demand curve from individual demand curves. The market demand at any given price is simply the sum of the individual demands at that price. The key thing to remember in going from individual demands to the market demand is to add quantities . Graphically, you sum the individual demands horizontally to get the market demand. The market demand curve will have a kink in it whenever the market price is high enough that some individual demand becomes zero. Sometimes you will need to Fnd a consumer’s reservation price for a good. Recall that the reservation price is the price that makes the consumer indi±erent between having the good at that price and not hav- ing the good at all. Mathematically, the reservation price p satisFes u (0 ,m )= u (1 ,m p ), where m is income and the quantity of the other good is measured in dollars. ²inally, some of the problems ask you to calculate price and/or in- come elasticities of demand. These problems are especially easy if you know a little calculus. If the demand function is D ( p ), and you want to calculate the price elasticity of demand when the price is p , you only need to calculate dD ( p ) /dp and multiply it by p/q . 15.0 Warm Up Exercise. (Calculating elasticities.) Here are some drills on price elasticities. ²or each demand function, Fnd an ex- pression for the price elasticity of demand. The answer will typically be a function of the price, p . As an example, consider the linear demand curve, D ( p )=30 6 p .Th en dD ( p ) /dp = 6and p/q = p/ (30 6 p ), so the price elasticity of demand is 6 p/ (30 6 p ). (a) D ( p )=60 p . p/ (60 p ) . (b) D ( p )= a bp . bp/ ( a bp ) . (c) D ( p )=40 p 2 . 2 . (d) D ( p )= Ap b . b . (e) D ( p )=( p +3) 2 . 2 p/ ( p +3)
Background image of page 1

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

View Full DocumentRight Arrow Icon
192 MARKET DEMAND (Ch. 15) (f) D ( p )=( p + a ) b . bp/ ( p + a ) . 15.1 (0) In Gas Pump, South Dakota, there are two kinds of consumers, Buick owners and Dodge owners. Every Buick owner has a demand func- tion for gasoline D B ( p )=20 5 p for p 4and D B ( p )=0i f p> 4. Every Dodge owner has a demand function D D ( p )=15 3 p for p 5 and D D ( p )=0for p> 5. (Quantities are measured in gallons per week and price is measured in dollars.) Suppose that Gas Pump has 150 con- sumers, 100 Buick owners, and 50 Dodge owners.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

15. Market Demand - Solutions - Chapter 15 NAME Market...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online