2350pqset0001demandAN

2350pqset0001demandAN - York University ECON2350 V Bardis...

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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
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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.

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2350pqset0001demandAN - York University ECON2350 V Bardis...

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