Tsinghua Micro Ch15 021025

Tsinghua Micro Ch15 021025 - Chapter Fifteen Market Demand...

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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 i’s 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 price-takers, 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 ε x y x y , % % . = ∆ ∆ Own-Price 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 commodity’s 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” own-price elasticity of demand for commodity i over an interval of values for p...
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This note was uploaded on 12/06/2011 for the course BUSINESS MicroEco taught by Professor Luyu during the Spring '11 term at Tsinghua University.

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Tsinghua Micro Ch15 021025 - Chapter Fifteen Market Demand...

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