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The market for good X consists of 2 consumers. Consumer 1’s demand for good X is:...

The market for good X consists of 2 consumers. Consumer 1’s demand for good X is: X1 = 15 - 3PX + 0.5PY + .02 *I1 Consumer 2's demand for X is: X2 = 10 - PX + 0.2PY + .01*I2

I1 and I2 are incomes of consumer 1 and 2, respectively. PX and PY are the prices of goods X and Y, respectively.

a.    What is the equation for the market demand function for X?

Graph the two individual demand curves and the market demand curve for the case which I1 = $2000, I2 = $3000, and PY = $10.

b. Suppose PX rises from $5 to $5.05. What is the market price elasticity of demand?

c. Suppose income is redistributed so that each consumer has $2500. If PX = 5 and PY = 10, how much does the quantity of X demanded change because of the redistribution?

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