Supply & Demand Analysis
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Questions and Answers

What does a function assign to each incoming number?

  • An independent variable
  • An outgoing number (correct)
  • A mathematical model
  • A variable

    • In the context of a function, which variable is considered dependent?

  • The variable used for parameters
  • The output variable (correct)
  • The input variable
  • The variable that remains constant

    • If quantity demanded, Q, depends on market price, P, how can this relationship be expressed?

  • Q = P^2 + a
  • Q = f(P) (correct)
  • Q = g(P)
  • Q = P + f

    • What characterizes inverse functions f and g?

    <p>They swap the roles of dependent and independent variables. (B)</p> Signup and view all the answers

    When analyzing the demand function P = -2Q + 50, what does P equal when Q is 0?

    <p>50 (A)</p> Signup and view all the answers

    What can be inferred about the slope of a typical demand function?

    <p>It is always negative. (B)</p> Signup and view all the answers

    What do the parameters a and b represent in the linear demand function hypothesis P = aQ + b?

    <p>Constants in the equation (A)</p> Signup and view all the answers

    Which statement correctly distinguishes a model from an equation?

    <p>A model predicts behavior, while an equation describes a relationship. (D)</p> Signup and view all the answers

    What type of function describes the relationship where P is a decreasing function of Q?

    <p>Demand function (C)</p> Signup and view all the answers

    In the equation P = -3Q + 75, which variable is dependent?

    <p>P (B)</p> Signup and view all the answers

    From the supply function P = aQ + b with a > 0, what happens to P as Q increases?

    <p>P increases (C)</p> Signup and view all the answers

    If the demand function is P = -2QD + 50, what does the slope indicate about QD?

    <p>QD decreases as P increases (D)</p> Signup and view all the answers

    Which of the following best describes the concept of endogenous variables?

    <p>Variables that can vary and are determined within the model (C)</p> Signup and view all the answers

    What is the dependent variable in the demand function P = -2QD + 50?

    <p>P (A)</p> Signup and view all the answers

    Which of the following represents the equilibrium quantity when the demand function is P = -4QD + 20 and the supply function is P = 2QS + 2?

    <p>3 (A)</p> Signup and view all the answers

    How does a fixed tax of £5 on each good affect the supply function P = 0.5QS + 25?

    <p>It shifts the supply curve upwards. (B)</p> Signup and view all the answers

    If the new supply function, after imposing a £5 tax, is represented as P = 0.5QS + 30, what will be the effect on the equilibrium price?

    <p>It will increase. (D)</p> Signup and view all the answers

    In the context of the equation P = -2QD + 50, what does the coefficient -2 represent?

    <p>The rate of change of price with respect to quantity. (C)</p> Signup and view all the answers

    Which equation would likely represent demand if P = -3QD + 15?

    <p>QD = (15 - P) / 3 (D)</p> Signup and view all the answers

    What is the point of intersection for the functions P = -2QD + 50 and P = 0.5QS + 25?

    <p>(10, 30) (B)</p> Signup and view all the answers

    What is the significance of solving both demand and supply equations simultaneously?

    <p>To determine equilibrium price and quantity. (D)</p> Signup and view all the answers

    Flashcards

    Demand Function

    A mathematical rule that shows how the quantity demanded of a good depends on its price.

    Independent Variable (microeconomics)

    The variable that is changed or controlled in an experiment (e.g., price in microeconomics).

    Dependent Variable (microeconomics)

    The variable that is measured or observed in an experiment (e.g., quantity demanded in microeconomics).

    Linear Demand Function

    A demand function where the relationship between price and quantity demanded is a straight line.

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    Inverse Functions

    Two functions that 'undo' each other. If function ‘f’ turns input ‘x’ into output ‘y’, then its inverse function ‘g’ turns output ‘y’ back into input ‘x’

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    Parameters (in a function)

    Constants in a mathematical function (often denoted by letters like a and b). They control the graph or the relationship.

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    Slope of a Demand Curve

    The rate at which price changes with respect to quantity demanded. Usually negative in a demand curve.

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    Graph of a Demand Function

    A visual representation of the relationship between price and quantity demanded, often plotted using a line.

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    Supply Function

    A relationship between the quantities of a good or service that producers are willing and able to offer at different prices.

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    Equilibrium Price & Quantity

    The price and quantity where supply and demand curves intersect, resulting in a balance between quantity supplied and quantity demanded.

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    Endogenous Variables

    Variables within a model that are determined by the model itself (e.g., price and quantity).

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    Exogenous Variables

    Variables in a model whose value is determined outside the model (e.g., GDP, government spending).

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    Equilibrium Price

    The price at which the quantity demanded equals the quantity supplied in a market.

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    Equilibrium Quantity

    The quantity of a good or service that is both supplied and demanded at the equilibrium price.

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    Supply Curve Equation

    A mathematical representation of how much of a good producers are willing to sell at different prices.

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    Demand Curve Equation

    A mathematical representation of how much of a good consumers are willing to buy at different prices.

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    Tax Impact on Equilibrium

    Taxes on goods shift the supply curve upward, leading to a higher equilibrium price and lower equilibrium quantity.

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    Supply Curve Shift

    A change in the conditions that affect production (e.g., costs, technology, taxes) that leads to a shift in the entire supply curve.

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    New Equilibrium after Tax

    The new point of intersection between the shifted supply curve (after tax) and the demand curve.

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    Effect of Tax on Price & Quantity

    Taxes on goods increase the price paid by consumers and reduce the quantity bought and sold in the market.

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    Study Notes

    Supply & Demand Analysis

    • Supply & demand analysis examines the relationship between supply and demand for goods and services.
    • A function assigns a unique output (y) for a given input (x).
    • Functions can be expressed as y = 2x + 3 or f(x) = 2x + 3.
    • Independent variables are inputs, while dependent variables are outputs.

    Independent and Dependent Variables

    • Incoming variable is the independent variable, while outgoing is the dependent variable.
    • The value of the dependent variable relies on the independent variable.
    • Example: In microeconomics, the quantity demanded of a product depends on its price; This can be expressed as Q = f(P).

    Linear Functions

    • A function is hypothesized to be linear.
    • This means: P = aQ + b, where a and b are parameters.

    Models and Equations

    • Models use economic laws to explain and forecast real-world situations.
    • Complex models often involve complicated mathematics.
    • Models are more accurate representations than simpler equations.

    Linear Demand Function

    • A typical linear demand function is: P = -2Q + 50.
    • To graph a linear demand function, find P when Q = 0 and Q when P = 0.
    • P = 50 when Q = 0.
    • Q = 25 when P = 0.

    Graph of Typical Linear Demand Function

    • The demand curve slopes downward as price increases.
    • The slope of this line is negative (a < 0).
    • The intercept (b) is positive (b > 0).

    Elementary Theory

    • Demand generally decreases as prices increase.
    • Thus, the slope of a demand curve is negative.
    • Price is a decreasing function of Q (quantity)

    Task

    • Determine if the given function (P = -3Q + 75) is a demand or supply curve.
    • Identify where the curve intersects the x and y axes.
    • Calculate P when Q = 23 and Q when P = 18

    Model Simplification

    • Models are often simplified representations of complex reality.
    • Factors like income, prices of related goods, and tastes are essential but excluded in initial models.
    • Q = f (P,Y,PS,PC,T)

    Equilibrium

    • Equilibrium occurs when quantity supplied equals quantity demanded.

    Example Calculation of Equilibrium Price and Quantity

    • Given demand and supply functions (P = -2QD + 50; P = 0.5Qs + 25)
    • Equate both expressions to find Q.
    • Q = 10.
    • Substitute Q in either equation to find P (P=30.

    Equilibrium Price and Quantity (Another Example)

    • Given demand and supply functions (P = -4QD + 20; P = 2Qs + 2)
    • Equate both expressions to find Q.
    • Q = 3
    • Substitute Q in either equation to find P (P=8).

    Tax Impact on Market Equilibrium

    • Introducing a fixed tax on each good affects the supply curve.
    • The new supply curve shifts upward by the amount of the tax.
    • Example: If the tax is £5, then the new supply equation becomes P = 0.5Q + 30.

    Additional Tax Problem

    • Identifying the demand and supply curve in P = 3Q + 24; P = -Q + 160.
    • The supply curve has a tax of £16.
    • Find the equilibrium price and quantity.

    Two-Commodity Model

    • Analyze the equilibrium prices and quantities for a two-commodity model and solve simultaneous equations.
    • Determining Equilibrium price and quantities for a two commodity model by substituting for the simultaneous linear equations.

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    Related Documents

    Supply & Demand Analysis Lecture Notes PDF

    Description

    This quiz covers the fundamental concepts of supply and demand analysis, including the roles of independent and dependent variables. It explores linear functions and the use of models and equations in economics. Test your understanding of how these elements interact within economic frameworks.

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