Linear Supply and Demand Equations PDF

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First-year 2014/2015 Economics 1 lecture notes on linear supply and demand equations...

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Linear Supply and Demand Equations Q=100-30P

Demand Curve

As P increases, Q falls

Q=-50+20P

Supply Curve

As P increases, Q rises

P

S

3.33

2.5 D 100 Equilibrium: 100-30P=-50+20P

Q 150=50P

P=3

Therefore Q=10

Q=50-30P+10Y

Demand Curve

Y=Income

Q=-100+20P+5T

Supply Curve

T=Given variable (Temperature/Technology etc.)

Equilibrium:

50-30P+10Y=-100+20P+5T

150+10Y-5T=50P

Q=50-30(3+0.2Y-0.1T)+10Y and Q=-100+20(3+0.2Y-0.1T)+5T Therefore Q=-40+4Y+3T

P

D1 D2

S2

S1

P=3+0.2Y-0.1T

The slope of the supply curve can alter the effects of a shift in demand. Given S1 in the above diagram, a shift from D1 to D2 increases quantity drastically but increases price moderately. Given S2 in the above diagram, a shift from D1 to D2 increases price drastically but increases quantity moderately. The same holds true for levels of slope in demand curves. Vertical supply curves can exist in certain markets. For example, if there is a given supply of flats, increased demand would just increase rent prices but not quantity of flats provided. Rent (the economic term used to describe by how much the owner of a resource earns more than the actual value of supplying the good to the market) is thus earned by the tenant. Supply curve slopes can change over time, considering the same example, in the short-run it is impossible to quickly increase the supply of flats available, in the long-run, however, a supply response is possible and new flats can be built in order to expand the profits of the tenant, moderating the slope of the supply curve downwards. The rate of slope of a given supply or demand curve is referred to as the good’s elasticity. Elasticity is measured using ∆P/∆Q....