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In: Economics

5. Suppose the quantity of good X demanded by individual 1 is given by X1 =...

5. Suppose the quantity of good X demanded by individual 1 is given by X1 = 10 − 2PX + 0.01I1 + 0.4PY and the quantity of X demanded by individual 2 is X2 = 5 − PX + 0.02I2 + 0.2PY

a) What is the market demand function for total X (= X1+X2) as a function of PX, I1, I2, and PY .

b) Graph the two individual demand curves (with X on the horizontal axis, PX on the vertical axis) for the case I1 = 1000, I2 = 1000, and PY = 10.

c) Using these individual demand curves, construct the market demand curve for total X. What is the algebraic equation for this curve?

d) Now suppose I1 increases to 1100 and I2 decreases to 900. How would the market demand curve shift? How would the individual demand curves shift? Graph these new curves.

e) Suppose PY rises to 15. Graph the new individual and market demand curves that would result.

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Rahul Sunny answered 2 years ago
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