Lecture 7. Market Demand 范里安版《中级微观经济学》ppt.ppt

A Special Property From the budget constraints, As is the expenditure share of good i, the equation could be rewrite as Or Or The Slutsky equation is written as Multiply the equation by pi/xi yields Or The first term on the right side is called substitution elasticity. Slutsky Equation in Elasticities * Lecture Seven Market Demand Elasticity Intermediate Microeconomics Think of an economy containing n consumers, denoted by i = 1, … ,n. Consumer i’s ordinary demand function for commodity j is When all consumers are price-takers, the market demand function for commodity j is From Individual to Market Demand Functions p1 From Individual to Market Demand Functions p1 p1 20 15 35 p1’ p1” p1’ p1” p1’ p1” Market demand curve is the “horizontal sum”of the demand curvesof individuals A and B. Suppose there are two consumers Representative Consumer The aggregate demand depends on prices and the distribution of incomes. Representative consumer is a imaginary people who has an income that is just the sum of all individual incomes has a demand same with the aggregate demand. The representative consumer assumption means the aggregate demand function has the form The Inverse Demand Function Inverse demand function is the inverse of the demand function, Pj(X). This function measures what the market price for good j would have to be for X units of it to be demanded. If all consumers face the same prices, the inverse demand function measures the marginal willingness to pay of every consumer who is purchasing the good. p1 Discrete Goods p1 p1 1 1 35 p1’ p1” p1’ p1” p1’ p1” A decrease in the price increase the number of consumers. Suppose the good is available only in units of zero or one Extensive and Intensive Margin Intensive margin: When price changes, each consumer decides to consume more or less of some goods. Extensive margin: When price changes, the consumers decides whether or not to enter the market for some goods (reservation-price model)