Aggregating Demand and Supply Curves and Concept of Equilibrium

Aggregate Demand and Supply Curves

Suppose the demand function for a product is Qd = 415 – 1.2P and there are 1,000 consumers of this product. We can calculate the market demand by aggregating the demand for all the consumers. The aggregate market demand will be calculated as follows:

Qd = 415*1000 – 1.2P*1000 = 415,000 – 1,200P

The inverse demand function will be:

P = 415,000/1,200 - Qd/1200, or

P = 345.83 – 0.0008 Qd

-0.0008 is the slope of the aggregate demand curve.

Similarly if the supply function for a product is Qs = 400+1.5P and there are 100 manufacturers of the product, the market supply will be:

Qs = 40,000+150P

The inverse market supply function will be:

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