D Describe the Process of Aggregating Demand and Supply Curves

Question 1

Aggregating Demand Curve

Answer 1

Qd=1-2P

100 people

so AggQd=100(1-2p)

To get market demand curve, invert Qd as a function of P, where P = 1 - Qd

Slope is the coefficient of Qd in inverse

Schw. Ex page 13

Question 2

Aggregating Supply Curve

Answer 2

distribute the #irms amongst the linear supply functions

Qs=1-2P

100 firms

so AggQs=100(1-2p)

To get market supply curve, invert
Slope of the supply curve is the Coefficient of Qs in inverse

Question 3

General

Answer 3

The aggregate or market demand (supply) function is calculated by summing the quantities demanded (supplied) at each price for individual demand (supply) functions.

Question 4

The supply function for a good is: quantity supplied = –750 + 15 × price. If this good has 10 suppliers, the supply curve for the good is:

Answer 4

price = 1/150 × quantity supplied + 50.

The supply function for the market is: quantity supplied = –7,500 + 150 × price. To get the supply curve, we must invert the supply function (i.e., state it in terms of price). Solving for price, we get: price = 1/150 × quantity supplied + 7,500/150, or price = 50 + 1/150 × quantity supplied.

Question 5

If a change in consumer tastes causes a permanent downward shift in demand for hats, but there are no changes in the cost of inputs to production of hats, the most likely market response would be: short-term movement along the supply curve to a lower equilibrium price, and a long-run shift in supply.

Answer 5

If the costs of production do not change, the supply curve for hats will not shift in the short run in response to a decrease in demand. Instead, there will be a movement along the supply curve to a new, lower, equilibrium price, followed by a long-run shift in the supply curve as producers exit the business.

Question 6

A price for a good above the equilibrium price will result in a situation of:

Answer 6

At prices above equilibrium, suppliers are willing to produce a greater quantity than buyers are willing to purchase. This is an excess supply condition. Competition among suppliers leads to downward pressure on prices until the market reaches equilibrium price and quantity.