Assume that we have two people with the same utility function of $U_i = x^{1/2} + y^{1/2}$ where $i=1,2$ and $I_i$ is the income. Let $P_x$ denote price of good $x$ and $P_y$ denote price of good $y$.

I'm being asked to derive the aggregate demand function. The only thing I got so far was finding the market demand for each good per person, which is

$x^*_1 = {I_1}/2P_x$ , $y^*_1 = {I_1}/2P_y$, for person 1

$x^*_2 = {I_2}/2P_x$, $y^*_2 = {I_2}/2P_y$ for person 2

Am I missing something? Please help.


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    $\begingroup$ Do you know what aggregate means? $\endgroup$ – Giskard Feb 10 at 9:36
  • $\begingroup$ The total demand for a good. So I'm just supposed to just add $x^*_1$ and $x^*_2$ together? $\endgroup$ – user25621 Feb 10 at 9:46
  • $\begingroup$ Well, if a total is the sum of its parts then that certainly makes sense. $\endgroup$ – Giskard Feb 10 at 9:52

Hint: Aggregate demand is the sum of individual demands.

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