Varian_Chapter15_Market_Demand.ppt

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1、ChapterFifteenMarketDemandFromIndividualtoMarketDemandFunctionsThinkofaneconomycontainingnconsumers,denotedbyi=1,…,n.Consumeri’sordinarydemandfunctionforcommodityjisFromIndividualtoMarketDemandFunctionsWhenallconsumersareprice-takers,themarketdemandfunctionforcommodityjisIfallconsum

2、ersareidenticalthenwhereM=nm.FromIndividualtoMarketDemandFunctionsThemarketdemandcurveisthe“horizontalsum”oftheindividualconsumers’demandcurves.E.g.supposethereareonlytwoconsumers;i=A,B.FromIndividualtoMarketDemandFunctionsp1p12015p1’p1”p1’p1”FromIndividualtoMarketDemandFunctions

3、p1p1p12015p1’p1”p1’p1”p1’FromIndividualtoMarketDemandFunctionsp1p1p12015p1’p1”p1’p1”p1’p1”FromIndividualtoMarketDemandFunctionsp1p1p1201535p1’p1”p1’p1”p1’p1”The“horizontalsum”ofthedemandcurvesofindividualsAandB.ElasticitiesElasticitymeasuresthe“sensitivity”ofonevariablewithrespect

4、toanother.TheelasticityofvariableXwithrespecttovariableYisEconomicApplicationsofElasticityEconomistsuseelasticitiestomeasurethesensitivityofquantitydemandedofcommodityiwithrespecttothepriceofcommodityi(own-priceelasticityofdemand)demandforcommodityiwithrespecttothepriceofcommodityj(

5、cross-priceelasticityofdemand).EconomicApplicationsofElasticitydemandforcommodityiwithrespecttoincome(incomeelasticityofdemand)quantitysuppliedofcommodityiwithrespecttothepriceofcommodityi(own-priceelasticityofsupply)EconomicApplicationsofElasticityquantitysuppliedofcommodityiwithre

6、specttothewagerate(elasticityofsupplywithrespecttothepriceoflabor)andmany,manyothers.Own-PriceElasticityofDemandQ:Whynotuseademandcurve’sslopetomeasurethesensitivityofquantitydemandedtoachangeinacommodity’sownprice?Own-PriceElasticityofDemandX1*5501010slope=-2slope=-0.2p1p1Inwhich

7、caseisthequantitydemandedX1*moresensitivetochangestop1?X1*Own-PriceElasticityofDemand5501010slope=-2slope=-0.2p1p1X1*X1*InwhichcaseisthequantitydemandedX1*moresensitivetochangestop1?Own-PriceElasticityofDemand5501010slope=-2slope=-0.2p1p110-packsSingleUnitsX1*X1*Inwhichcaseist

8、hequantitydemanded