Chapter 15 Market Demand
Chapter 15 Market Demand
One can think of the market demand as the demand of some "representative consumer
One can think of the market demand as the demand of some “representative consumer”
Adding up demand curves: The horizontal summation principle
Adding up demand curves: The horizontal summation principle
Horizontal summation
+ = Horizontal summation
The market demand curve PRICE DEMAND CURVE D(p) QUANTITY It is the sum of the individual demand curve
PRICE DEMAND CURVE D(p) QUANTITY It is the sum of the individual demand curve The market demand curve
The price elasticity of demand: e=(△q/q)/(△p/p) =(p/q)/(△p/△q, or =(dq/q)/(dp/p) =(p/q)/(dp/dq) slope of ray slope of curve
The price elasticity of demand: ε= (Δq / q ) / (Δp / p) = ( p / q ) / (Δp /Δq), or ε= ( d q / q ) / ( d p / p) = ( p / q ) / ( d p / d q) = slope of ray / slope of curve
A good has an elastic inelastic,unitary) demand f e>1(le<1,le=1)
A good has an elastic ( inelastic, unitary) demand if |ε| > 1 ( |ε| < 1 , |ε| = 1 )
Elasticity and revenue. R=pq,△R=q△p+pAq,and then △R/△p=q[1+ep)] where (p)=(p△q)/(q△p):
Elasticity and revenue. R = pq, ΔR = qΔp + pΔq , and then ΔR/ Δp = q [ 1 +ε(p) ] where ε( p ) = ( pΔq ) / (qΔp)
The elasticity of a linear demand curve p=a-bq PRICE 1ε1>1 a/2 = 181=0 a/2b QUANTITY p267
QUANTITY PRICE a /2 a / 2b ︱ε︱=∞ ︱ε ︱>1 ︱ε ︱=1 ︱ε ︱<1 ︱ε ︱=0 The elasticity of a linear demand curve p = a – b q p267
Strikes and profits. The Laffer curve. Similarly, MR=△R/△q =p(q)[1+1/e(q)] where e(q)=(p△q)/(q△p):
Strikes and profits. The Laffer curve. Similarly, MR = ΔR / Δq = p (q) [ 1 + 1 /ε(q) ] where ε( q ) = ( pΔq ) / (qΔp)