14/09/15
Lesson 3-Calculating and illustrating market equilibrium using linear demand/supply functions
Learning Objective: I can calculate market price and quantity using linear demand and supply functions.
DA:
Using the demand/supply function we are able to do the following:
DA:
Using the demand/supply function we are able to do the following:
- Derive the demand/supply schedule.
- Calculate the equilibrium price/quantity demanded/supplied.
- Illustrate schedules on a graph.
Don't forget!
Qd= a - bP
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Don't forget!
Qs= c + dP
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Qd= 2000 - 200p
Qs= -400 + 400p
Qs= -400 + 400p
Plot the relevant demand/supply curves:
Equilibrium can also be found by setting our two functions opposite each other:
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Once we have the equilibrium price, equilibrium quantity can be found by substituting the price into either the demand function or the supply function:
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Equilibrium Qd=Qs
2000 - 200P = -400 + 400P Simplify equation and solve for P |
Qd= 2000 - 200P
Qd= 2000 - (200 x 4) Qd= 2000 - 800 = 1200 units |
Qs= -400 + 400P
Qs= -400 + (400 x 4) Qs= -400 + 1600 = 1200 units |
Using demand/supply functions we may show effects of changes in the determinants of demand/supply. Let's assume there is a shift of demand curve to the left, caused by a changed in tastes of the product. Qd= 1400 - 200P |
Demand curve has shifted left, with 600 fewer units being demanded at each price. Excess supply at 600, prices falls to eliminate excess. |
Activity/HW: