15s - © 2010 W. W. Norton & Company, Inc. 15...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: © 2010 W. W. Norton & Company, Inc. 15 Market Demand © 2010 W. W. Norton & Company, Inc. 2 From Individual to Market Demand Functions Think of an economy containing n consumers, denoted by i = 1, … ,n. Consumer i’s ordinary demand function for commodity j is x p p m j i i * ( , , ) 1 2 © 2010 W. W. Norton & Company, Inc. 3 From Individual to Market Demand Functions When all consumers are price-takers, the market demand function for commodity j is If all consumers are identical then where M = nm. X p p m m x p p m j n j i i i n ( , , , , ) ( , , ). * 1 2 1 1 2 1 X p p M n x p p m j j ( , , ) ( , , ) * 1 2 1 2 © 2010 W. W. Norton & Company, Inc. 4 From Individual to Market Demand Functions The market demand curve is the “horizontal sum” of the individual consumers’ demand curves. E.g. suppose there are only two consumers; i = A,B. © 2010 W. W. Norton & Company, Inc. 5 From Individual to Market Demand Functions p 1 p 1 x A 1 * x B 1 * x x A B 1 1 * p 1 20 15 35 p 1 ’ p 1 ” p 1 ’ p 1 ” p 1 ’ p 1 ” The “horizontal sum” of the demand curves of individuals A and B. © 2010 W. W. Norton & Company, Inc. 6 Elasticities Elasticity measures the “sensitivity” of one variable with respect to another. The elasticity of variable X with respect to variable Y is x y x y , % % . © 2010 W. W. Norton & Company, Inc. 7 Economic Applications of Elasticity Economists use elasticities to measure the sensitivity of – quantity demanded of commodity i with respect to the price of commodity i (own-price elasticity of demand) – demand for commodity i with respect to the price of commodity j (cross-price elasticity of demand). © 2010 W. W. Norton & Company, Inc. 8 Economic Applications of Elasticity – demand for commodity i with respect to income (income elasticity of demand) – quantity supplied of commodity i with respect to the price of commodity i (own-price elasticity of supply) © 2010 W. W. Norton & Company, Inc. 9 Economic Applications of Elasticity – quantity supplied of commodity i with respect to the wage rate (elasticity of supply with respect to the price of labor) – and many, many others. © 2010 W. W. Norton & Company, Inc. 10 Own-Price Elasticity of Demand Q: Why not use a demand curve’s slope to measure the sensitivity of quantity demanded to a change in a commodity’s own price? © 2010 W. W. Norton & Company, Inc. 11 Own-Price Elasticity of Demand 5 50 10 10 slope = - 2 slope = - 0.2 p 1 p 1 10-packs Single Units X 1 * X 1 * In which case is the quantity demanded X 1 * more sensitive to changes to p 1 ?...
View Full Document

This note was uploaded on 06/12/2011 for the course ECON 101 taught by Professor Dee during the Spring '10 term at Andhra University.

Page1 / 47

15s - © 2010 W. W. Norton & Company, Inc. 15...

This preview shows document pages 1 - 12. Sign up to view the full document.

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