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Homework answers / question archive / The market for lemonade has 10 potential consumers, each consumer has the individual demand function: ???? = 101?10???????? where ???????? is the quantity demanded for the individual consumer
The market for lemonade has 10 potential consumers, each consumer has the individual demand function: ???? = 101?10???????? where ???????? is the quantity demanded for the individual consumer.a) Compute the aggregate market demand curve. (hint: you must add up the quantity demanded at each price).b) Suppose that the consumers view orange and lemonade as substitutes. Using a supply and demand diagram show what will happen to the equilibrium price and quantity of lemonade if the price of orange juice were to increase. Carefully explain any changes in your diagram. Be sure to clearly label all parts of your diagram.c) Suppose that the consumers’ income decreased. Using a supply and demand diagram to illustrate how this affects the equilibrium price and quantity of lemonade. Carefully explain any changes in your diagram. Be sure to clearly label all parts of your diagram.
a) Aggregate Demand Curve: qi = (101-p)/10
So q = 10qi = 101-p
Aggregate market demand: q = 101-p
b) An increase in the price of a substitute will lead to an increase in the demand for lemonade. The demand curve would shift out from D1 to D2. This would result in higher price and higher quantity of lemonade.
c) A decrease in consumer income will reduce the demand for lemonade. Hence, the demand curve will shift in from AD1 to AD2. This would result in lower price and lower quantity demanded of lemonade.
