Lessons
- Types of Markets in Economics
- Demand Function and Demand Curve
- Supply Function and Supply Curve
- Shifts in Demand and Supply Curves
- Aggregating Demand and Supply Curves and Concept of Equilibrium
- Excess Demand and Excess Supply
- Stable and Unstable Equilibrium
- Types of Auctions
- Four Methods of Distributing Government Securities
- Consumer and Producer Surplus
- Effects of Government Regulation on Demand and Supply
- Price Elasticity of Demand
- Income Elasticity of Demand
- Cross Price Elasticity of Demand
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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