the market for lemon has 10 potential consumers, each having an individual demand curve p=101-10Q where P is price in dollars per cup and Q is the number of cups demanded per week by the consumer. find the market demand curve using algebra. draw and individual demand curve and the market demand curve. what is the quantity demanded by each consumer and in the market as a whole when lemon is price at p-$1/cup?
Answers
Answer:
P
=
101
−
10
q
i
where
q
i
is the quantity demanded for the individual consumer.
a) Compute the aggregate market demand curve. (Hint: 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 the diagram. Be sure to clearly label all parts of the 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 the diagram. Be sure to clearly label all parts of the diagram.
As orange juice and lemonade are substitutes, rise in price of orange juice will lead to decline of demand of orange juice and rise in demand of lemonade. As money income declines, demand of lemonade too declines. This is because income effect is positive for lemonade which is a normal good