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The concept of market demand, discussing how to calculate it as the sum of individual demands, the representative consumer model, the inverse of aggregate demand curve, and the reservation price model. Additionally, it covers elasticity, how it measures the responsiveness of demand to price, and how revenue changes with price and quantity. The document also introduces the Laffer curve and its implications for tax revenue.
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Market demand =sum of the two demand curves
Agent 1'sdemand Agent 2'sdemand
D (^) 1 ( p (^) 1 )
D (^) 2 ( p (^) 2 )
PRICE PRICE PRICE 20 15 10 5
20 15 10 5 x (^) 1 x 2 x 1 + x 2 A B C
D (^) 1 ( p (^) 1 ) + D (^) 2 ( p (^) 2 )
20 15 10 5
20 15 10 5
Figure 15.
p q
dq dp
bp=(a bp)
p q bAp b ^1 = bAp b Ap b^ = b
|ε| =
|ε| = 0
|ε| = 1
|ε| > 1
|ε| < 1
PRICE
a /2 b
a /2 QUANTITY
∞
Figure 15.
q dp + dpdq
TAXREVENUE
Maximumtax revenue Laffer curve
t * 1 TAX RATE
Figure 15.
Demandfor labor
Supply of laborif not taxed
Supply of laborif taxed S (^) S'
w
L L' LABOR
BEFORETAX WAGE
Figure 15.
(1 t) w
