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QUESTION
Consider a market with three consumers, 1, 2, and 3, each of whom have identical CES preferences for some good,G,and all other goods,Y (i....
Consider a market with three consumers, 1, 2, and 3, each of whom have identical CES preferences for some good,G,and all other goods,Y (i.e. U(G,Y)=(Gγ+Yγ)1 whereγ1 =γ2 =γ3 =0.5), and each of whom has income, M1, M2, and M3, respectively.
- (a) Suppose M1 = M2 = M3 = 10. Compute the aggregate demand curve for good G for this distribution of incomes.
- (b) Suppose, instead, that M1 = 5, M2 = 10, and M3 = 15. Compute the aggregate demand curve for this distribution of incomes.
