This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
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 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 ε 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 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” ownprice elasticity of demand for commodity i over an interval of values for p...
View
Full Document
 Spring '11
 Luyu
 Supply And Demand, ownprice elasticity

Click to edit the document details