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Unformatted text preview: Chapter Fifteen Market Demand From Individual to Market Demand Functions Think of an economy containing n consumers, denoted by i = 1, ,n. Consumer is ordinary demand function for commodity j is x p p m j i i * ( , , ) 1 2 From Individual to Market Demand Functions When all consumers are pricetakers, the market demand function for commodity j is X p p m m x p p m j n j i i i n ( , , , , ) ( , , ). * 1 2 1 1 2 1 = = 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. 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 , % % . = OwnPrice Elasticity of Demand Q: Why not just use the slope of a demand curve to measure the sensitivity of quantity demanded to a change in a commoditys own price? A: Because the value of sensitivity then depends upon the (arbitrary) units of measurement used for quantity demanded. Arc and Point Elasticities An average ownprice elasticity of demand for commodity i over an interval of values for p...
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 Spring '11
 Luyu

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