Economics Asked by user25621 on August 21, 2020
Assume that we have two people with the same utility function of $U_i = x^{1/2} + y^{1/2}$ where $i=1,2$ and $I_i$ is the income. Let $P_x$ denote price of good $x$ and $P_y$ denote price of good $y$.
I’m being asked to derive the aggregate demand function. The only thing I got so far was finding the market demand for each good per person, which is
$x^*_1 = {I_1}/2P_x$ , $y^*_1 = {I_1}/2P_y$, for person 1
$x^*_2 = {I_2}/2P_x$, $y^*_2 = {I_2}/2P_y$ for person 2
Am I missing something? Please help.
Thanks.
If you have $J$ consumers therefore $J$ demands for a good $X$. Denoting the individual demand of each consumer with $x_j^*$ as you have it, if $X$ is the aggregate demand, it is just the sum of every individual demand:
$X=sum_{j=1}^{J}x_j^*$
Then for your case it's: $x_1^*+x_2^*=frac{(I_1+I_2)}{2P_X}$, and the same with $Y$.
Answered by nrivera on August 21, 2020
1 Asked on March 16, 2021 by ishan-kashyap-hazarika
economic measurement gdp national accounts reference request
1 Asked on March 16, 2021 by ezekiel
1 Asked on March 15, 2021 by shk910
1 Asked on March 13, 2021 by emmanuel-ameyaw
1 Asked on March 12, 2021 by streawkceur
1 Asked on March 12, 2021
0 Asked on March 11, 2021 by pascal-dufresne
1 Asked on March 11, 2021 by london
directed technical change economic growth reference request technological progress
0 Asked on March 10, 2021 by econrider
2 Asked on March 9, 2021
1 Asked on March 9, 2021
0 Asked on March 8, 2021 by isabella-green
2 Asked on March 7, 2021 by harsh-sharma
classical economics keynesian economics macroeconomics real analysis wages
2 Asked on March 6, 2021 by riskymaor
1 Asked on March 6, 2021
Get help from others!
Recent Answers
© 2022 AnswerBun.com. All rights reserved. Sites we Love: PCI Database, MenuIva, UKBizDB, Menu Kuliner, Sharing RPP, SolveDir