marketdemandchh - Market Demand 1 From Individual to Market...

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Market Demand 1 From Individual to Market Demand Add up individual choices to get total market demand. x i ( p 1 ,p 2 ,m i ) = consumer i ’s demand function for good , = 1 , 2. Market demand or aggregate demand for good is X ( p 1 ,p 2 ,m 1 ,...,m n ) = n X i =1 x i ( p 1 ,p 2 ,m i ) Fixing all the money incomes and the price of good 2 relation between aggregate demand for good 1 and its price (graph). Demand curve for good 1 shifts ( ) if p 2 and goods are substitutes (comple- ments). Demand curve for good 1 shifts if money incomes increase and good 1 is normal for all consumers. Representative consumer assumption: Aggregate demand X ( p 1 ,p 2 ,M ) in the economy is just like the demand of some individual who faces prices ( p 1 ,p 2 ) and has income M . 2 The Inverse Demand Function Inverse demand function : Looking at the aggregate demand as giving price as a function of quantity. Recall that, in equilibrium, prices (or price ratios) measure marginal rates of
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marketdemandchh - Market Demand 1 From Individual to Market...

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