Lecture 5 Elasticity. Required Text: Frank and Bernanke – Chapter 4. Market Demand Curve. For every single consumer there is a separate demand curve. If we have two consumers in the market, then we will have two individual demand curves, D1 and D2. P. P 1. P 2. D2. D1. Q 1. Q 2. Q.
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Frank and Bernanke – Chapter 4
Consumer 1 buys 10 units
Consumer 2 buys 20 units
Thus the market demand at P=$2 is 30 units
Consumer 1 buys 22 units
Consumer 2 buys 30 units.
Thus the market demand is 52 units.
Q = a – bP
Ed = (∂Q/ ∂P)(P/Q) = − b(P/Q)
Read as the cross-price elasticity of demand for commodity
Y with respect to commodity X.
Units of Y demanded Price of X Edyx
40 $12 (-20/2)x(10/60) = - 1.66
Units of Y demanded Income EI
150 $1600 (50/400)x(1200/100) = 1.5