2350pqset0001demandAN

# 2350pqset0001demandAN - York University ECON2350 V Bardis...

This preview shows pages 1–2. Sign up to view the full content.

Answers to Practice Set 1 1. X ( p ) = x 1 ( p ) + x 2 ( p ) = (50 - p ) + (25 - p/ 2) = 75 - 3 p/ 2 No; all three demands are equally elastic: ± Xp = - 3 2 p 75 - 3 p/ 2 = - p 50 - p ± x 1 p = ( - 1) p 50 - p = - p 50 - p ± x 2 p = - 1 2 p 25 - p/ 2 = - p 50 - p 2. (a) The inverse demands are p = 50 - x 1 and p = 25 - x 2 . (b) The aggregate demand function is X ( p ) = 0 , if p 50 50 - p, if 25 p 50 (50 - p ) + (25 - p ) = 75 - 2 p if p 25 3. (a) X ( p ) = M 1 p + M 2 3 p = 3 M 1 + M 2 3 p (b) ± p = - p - 2 3 M 1 + M 2 3 p 3 M 1 + M 2 3 p = - 1 (c) ± 1 m = 1 p M 1 M 1 p = 1 and ± 2 m = 1 3 p M 2 M 2 3 p = 1 (d) Let M 0 1 = M 1 / 2 and M 0 2 = M 2 + M 1 / 2. Substituting these in the demand function we get X ( p,M 0 1 ,M 0 2 ) = 3 M 0 1 + M 0 2 3 p = 1 3 p (3 M 1 / 2 + M 2 + M 1 / 2) = 1 3 p (2 M 1 + M 2 ) < 1 3 p (3 M 1 + M 2 ) = X ( p,M 1 ,M 2 ) As expected, aggregate demand decreases when money is taken from the person with the higher demand for the good and given to the person with the lower demand. (Is there a calculus way of showing this?) If equilibrium is determined by equating supply and demand, the equilibrium

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 02/29/2012 for the course ECON 2350 taught by Professor Bardis during the Fall '12 term at York University.

### Page1 / 3

2350pqset0001demandAN - York University ECON2350 V Bardis...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online