System of Linear Equations Vivian and Ashley

Linear Demand Functions Shows the relationship between QUANTITY DEMANDED of the product and PRICE QD= a – bP ‘a’ = quantity demanded if price is 0 ‘b’ = slope of curve

Example: Change in ‘a’ QD= 500 – 10P QD= 600 – 10P Prices ($) Calculation QD 500 - (10X0) 500 10 500 - (10X10) 400 20 500 - (10X20) 300 30 500 - (10X30) 200 40 500 - (10X40) 100 Prices ($) Calculation QD 600 - (10X0) 600 10 600 - (10X10) 500 20 600 - (10X20) 400 30 600 - (10X30) 300 40 600 - (10X40) 200

Graphical representation

Change in ‘a’ = HORIZONTAL shift of the demand curve

Example: Change in ‘b’ QD= 500 – 10P QD= 500 – 20P Prices ($) Calculation QD 500 - (10X0) 500 10 500 - (10X10) 400 20 500 - (10X20) 300 30 500 - (10X30) 200 40 500 - (10X40) 100 Prices ($) Calculation QD 500 – (20X0) 500 10 500 – (20X10) 300 20 500 – (30X10) 100

Graphical representation

Change in ‘b’ = change in slope of the demand curve Change in ‘b’ = change in slope of the demand curve *CHANGE IN SLOPE IS DIFFERENT FROM CHANGE IN ELASTICITY

Examples of non-price determinants of demand Income Summary ‘a’ and ‘b’ will be affected by changes in the non-price determinants of demand Examples of non-price determinants of demand Income Price of other products Tastes/Preferences

Linear Supply Functions Shows the relationship between QUANTITY SUPPLIED of the product and PRICE QS= c – dP ‘c’ = quantity demanded if price is 0 ‘d’ = slope of curve

Almost identical to the demand linear function Summary Almost identical to the demand linear function Change in ‘c’ = parallel shift in curve Change in ‘d’ = change in slope of the curve

Examples of non-price determinants of supply Summary ‘c’ and ‘d’ will be affected by changes in the non-price determinants of supply Examples of non-price determinants of supply The cost of factors of production The state of technology Expectations

QD= QS a – bP = c – dP MARKET EQUILIBRIUM The intersection between demand curve and supply curve QD= QS a – bP = c – dP

EXAMPLE QD = 2000 – 20P Qs = -400 – 400P Prices ($) Calculation QD 2000 – 0 2000 1 2000 – 200 1800 2 2000 – 400 1600 3 2000 – 600 1400 4 2000 – 800 1200 5 2000 – 1000 1000 6 2000 – 1200 800 Prices ($) Calculation QS –400 + 0 –400 1 –400 + 400 2 –400 + 800 400 3 –400 + 1200 800 4 –400 + 1600 1200 5 –400 + 2000 1600 6 –400 + 2400 2000

example 2000 – 20P = –400 – 400P 2400 = 600P P = $4 QD = 2000 – 200(4) QD = 1200 units QS = –400 +400(4) QS = 1200 units or

Graphical representation