1. System of Linear Equations
Vivian and Ashley

2. 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

3. 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

4. Graphical representation

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

6. 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

7. Graphical representation

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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 1 – 2 –
400 3 –
800 4 –
1200 5 –
1600 6 –
2000

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

16. Graphical representation