Consumer Goods Market Aggregation

The market clearing prices in general equilibrium arise from the separate market-level demand and supply curves, which sums the demand or supply across all market participants at a given price. Here we test the aggregation of demand functions derived from individual preferences, as in Deriving Demand and Comparative Statics of Demand, to a market demand function that summarizes the total quantity demanded across all agents at a given price. Central to the tests is to verify that the agent can aggregate the demands of market participants with heterogeneous preferences. On the other side of the market, we test if the agent can aggregate the “supply functions” resulting from the optimal choice of factors in Deriving Factor Demand and Comparative Statics with Production.

Elements

1. Aggregation of Consumer Demand

   Adding up demand across two consumer groups with different linear demand curves at a given price.

2. Aggregation of Offer Curve for the Good

   Aggregating linear offer (supply) curves across groups of markets, as a function or at a given price.