ECON 203 DEMAND AND SUPPLY
ELASTICITY PRICE MECHANISM
ASSESSMENT SCRIPT ANSWERS 2026
◉ What is the difference between a model of real-world behavior
and the real world behavior being modeled?
Answer: A model of real-world behavior is an abstraction which
simplifies the world so that we can focus on certain things. It builds
the structure for our studies. Real world behavior being modeled is
everything out there.
◉ What is the Walrasian model a model of, and what are the
Walrasian model's main characteristics?
Answer: The Walrasian model is a model of how buyers and sellers
interact in a market in order to derive a price that will lead to an
equilibrium: sellers will produce the exact amount of product that
buyers are willing to buy. It is used in general equilibrium theory.
The model's main characteristics are that:
We assume consumers have fixed tastes and preferences and that
firms have fixed technology on which they base production
We assume consumers and firms base their behavior (buying and
selling) on maximization (self-interest is a central part of the
western world)
We assume perfect competition
, Large numbers of buyers and sellers so no one has any influence
over market price
Product is standardized
Free entry and exit
Perfect information
Market forces equilibrate demand and supply
There is no unemployment
There are no unsold inventories
◉ Explain how the market demand function for good x is derived
from the demand functions of the individuals participating in the
market.
Answer: The demand function for good x by person 1 is
x1=h1(Px,Pyo,mo).
The demand function for good x by person 2 is x2=h2(Px,Pyo,mo).
If we assume that the market is made up of only two individuals,
then market demand is the sum of their individual demand
functions: x1+x2=h1(Px,Pyo,m1o)+h2(Px,Pyo,m2o) which can be
simplified to: xmarket=d(Px,Pyo,m1o,m2o).
In a general sense, X=x1+x2+x3+...+xnso := h(Px,Py,m1,m2,...,mn)
◉ Explain how the market demand curve for good x is derived from
the market demand function for good x.
ELASTICITY PRICE MECHANISM
ASSESSMENT SCRIPT ANSWERS 2026
◉ What is the difference between a model of real-world behavior
and the real world behavior being modeled?
Answer: A model of real-world behavior is an abstraction which
simplifies the world so that we can focus on certain things. It builds
the structure for our studies. Real world behavior being modeled is
everything out there.
◉ What is the Walrasian model a model of, and what are the
Walrasian model's main characteristics?
Answer: The Walrasian model is a model of how buyers and sellers
interact in a market in order to derive a price that will lead to an
equilibrium: sellers will produce the exact amount of product that
buyers are willing to buy. It is used in general equilibrium theory.
The model's main characteristics are that:
We assume consumers have fixed tastes and preferences and that
firms have fixed technology on which they base production
We assume consumers and firms base their behavior (buying and
selling) on maximization (self-interest is a central part of the
western world)
We assume perfect competition
, Large numbers of buyers and sellers so no one has any influence
over market price
Product is standardized
Free entry and exit
Perfect information
Market forces equilibrate demand and supply
There is no unemployment
There are no unsold inventories
◉ Explain how the market demand function for good x is derived
from the demand functions of the individuals participating in the
market.
Answer: The demand function for good x by person 1 is
x1=h1(Px,Pyo,mo).
The demand function for good x by person 2 is x2=h2(Px,Pyo,mo).
If we assume that the market is made up of only two individuals,
then market demand is the sum of their individual demand
functions: x1+x2=h1(Px,Pyo,m1o)+h2(Px,Pyo,m2o) which can be
simplified to: xmarket=d(Px,Pyo,m1o,m2o).
In a general sense, X=x1+x2+x3+...+xnso := h(Px,Py,m1,m2,...,mn)
◉ Explain how the market demand curve for good x is derived from
the market demand function for good x.
