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Homework answers / question archive / Suppose there are two buyers in a market with the following demand functions
Suppose there are two buyers in a market with the following demand functions.
Demand 1: P = 210 - 1.9Q
Demand 2: P = 168 - 0.9Q
Which of the following points is not on the market demand curve?
Select one:
a. P = 112.00, Q = 113.80
b. P = 189.00, Q = 11.05
c. P = 168, Q = 22.11
d. P = 56.00, Q = 193.05
I don't think it's solvable through normal measures, how does this work?
Demand curve of buyer - 1 is P = 210 - 1.9Q
Or, 1.9Q = 210 - P
Or, Q = (210/1.9) - (1/1.9)P
Or, Q = 110.5263 - 0.5263P
Now, Demand curve of buyer - 2 is P = 168 - 0.9Q
Or 0.9Q = 168 - P
Or, Q = 168/0.9 - (1/0.9)P
Or, Q = 186.6666 - 1.1111P
Now market demand curve we can get through horizontal summation of the individual demand curve of buyer - 1 and buyer - 2. This horizontal summation is applicable P is less than or equal to 168.
So when P > 168 the market demand curve will be same as buyer - 1 , because above the price 168 the demand of buyer - 2 is 0.
Market demand : P = 210 - 1.9Q , when P > 168
So, market demand is Q = 110.5263 - 0.5263 + 186.6666 -1.1111P or, Q = 297.1929 - 1.6374P , when P < =168
Market demand is Q = 297.1929 - 1.6374P ,when P is less than or equal to168 , P <=168
Now to check the following points on the market demand curve or not we have check by putting those values in this market demand equation which satisfied with those points or not.
(a). P = 112 , Q = 113.80
As P < 168 here , so we put the value of P = 112 on market demand curve Q = 297.1929 - 1.6374P
We put P = 112 on market demand equation Q = 297.1929 - 1.6374P , if we get Q = 113.8 then the point will be on the demand curve.
Q = 297.1929 - 1.6374P = 297.1929 - 1.6374*112 = 297.1929 - 183.3888 = 113.80 which is equal to Q = 113.80 given.
Therefore, point P = 112 and Q = 113.80 on the market demand curve.
(b). P = 189.00 , Q = 11.05.
As P > 168 , we put the value on the market demand curve similar to buyer - 1 , i.e P = 210 - 1.9Q
Again we put Q = 11.05 on the market demand curve and we have to see whether we are getting the value of P = 189 or not.
P = 210 - 1.9Q , putting Q = 11.05 we get
P = 210 - 1.9*11.05 = 210 - 20.995 = 189.00 which is not equal to 189.00.
So, point P = 189, Q = 11.05 on the market demand curve.
(c). P = 168 , Q = 22.11
As P = 168 , we will put this value on the market demand curve Q = 297.1929 - 1.6374P.
We can check this point on the market demand curve or not by putting any of the value and from there we can check other value is coming or not.
We put P = 168 on the demand equation Q = 297.1929 - 1.6374P.
Q = 297.1929 - 1.6374*168 = 297.1929 - 275.0832 = 22.1097 = 22.11. So, this value of Q is equal to Q = 22.11. So this point also in the market demand curve.
Therefore, point P = 168 , Q = 22.11 on the market demand curve.
(d) P = 56.00 , Q = 193.05
As P < 168 , so we will put this value on the market demand curve Q = 297.1929 - 1.6374P.
By putting the value of P = 56 on the market demand and we can check whether we are getting given value of Q or not.
Market demand is Q = 297.1929 - 1.6374P , by putting P = 56.00 we get
Q = 297.1929 - 1.6374*56 = 297.1929 - 91.6944 = 205.4985 and this value is not same with Q = 193.05. So, we can say this point is not on the market demand curve.
Therefore, P = 56, Q = 193.05 is not on the market demand curve.
Therefore, we can conclude that point given on the option (a) , (b) and (c) are on the market demand curve but point given in option (d) not on the demand curve.