Harry, Surie and Grace are the only three consumers in the market for a Korean’s famous dessert Bingsoo. Harry’s demand for Bingsoo is given by P = 10 – 2q. Surie’s demand for Bingsoo is given by P = 12 – 3q and Grace’s demand for Bingsoo is given by P = 15 – 4q. If we need to draw the total market demand for Bingsoo, which of the following statement is correct?Group of answer choicesThere will be two kinks in the market demand curve at P = 10 and P = 12.There will be three kinks in the market demand curve at P = 8, P = 10 , P = 12.There will be a kink in the market demand curve at P = 8There will be no kink in the market demand curve except for the vertical intercept.The market demand curve can be found by adding up everyone’s demand curves vertically.
Question
Harry, Surie and Grace are the only three consumers in the market for a Korean’s famous dessert Bingsoo. Harry’s demand for Bingsoo is given by P = 10 – 2q. Surie’s demand for Bingsoo is given by P = 12 – 3q and Grace’s demand for Bingsoo is given by P = 15 – 4q. If we need to draw the total market demand for Bingsoo, which of the following statement is correct?Group of answer choicesThere will be two kinks in the market demand curve at P = 10 and P = 12.There will be three kinks in the market demand curve at P = 8, P = 10 , P = 12.There will be a kink in the market demand curve at P = 8There will be no kink in the market demand curve except for the vertical intercept.The market demand curve can be found by adding up everyone’s demand curves vertically.
Solution
The correct statement is: There will be two kinks in the market demand curve at P = 10 and P = 12.
Here's the step by step explanation:
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First, we need to understand that the market demand curve is the horizontal sum of individual demand curves. This means that at each price level, we add up the quantities demanded by each consumer.
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Harry stops demanding Bingsoo when the price is above 10, Surie stops when the price is above 12, and Grace stops when the price is above 15.
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Therefore, the market demand curve will have a kink at P = 10 and P = 12. This is because at these price levels, one consumer stops demanding Bingsoo, causing a change in the slope of the market demand curve.
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Below P = 10, all three consumers are demanding Bingsoo, so the market demand curve is the sum of all three individual demand curves. Between P = 10 and P = 12, only Surie and Grace are demanding Bingsoo, so the market demand curve is the sum of their individual demand curves. Above P = 12, only Grace is demanding Bingsoo, so the market demand curve is the same as Grace's individual demand curve.
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Therefore, the market demand curve will have two kinks, at P = 10 and P = 12.
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