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Demand & Supply Functions

# Demand & Supply Functions

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07/08/2013

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SUPPLY
Supply
o
Refers to the various quantities offered for sale at various prices
Quantity Supplied
o
Refers to a specific quantity offered for sale at a specific price
Supply Function
o
Indicates the relationship between the quantity of thecommodity supplied and the unit price of the commodity
Law of Supply
o
The quantity of a good supplied is directly related to thegood’s price, other things constant.
Example of a Supply Curve
pp = f(q)(0, b) 0 q
The slope of a supply curve is usually positive, as priceincreases, quantity supplied increases and vice-versa.
The y-intercept of the supply curve (0,
b
) represents the lowest price at which an item will be supplied.
Sample Problems:

1.
For each 25% increase in the unit price, 200 morecalculators are supplied. When the price per calculator is P400, 500 more calculators are supplied. Assuminga linear relationship between price and quantity:
a.
Setup the supply function
b.
Find the lowest price at which this product would be supplied.
c.
How many calculators will be supplied if the unit price is P200?
d.
Sketch the graph.
2.
Halcon’s Furniture will supply 400 lampshades atP250 each. The supply is increased to 600 pieceswhen the unit price is increased by 10%.
a.
Setup the supply function
b.
How many lampshades will be supplied if the unit price is P300?
c.
Find the lowest price at which this item would besupplied.
3.
Eric’s bookshop will supply 500 bookshelves at a priceof P3500 each. For each 10% increase in the unit price, 150 more bookshelves will be supplied.
a.
Setup the supply function.
b.
Find the lowest price at which each product will be supplied.
DEMAND

Demand
o
Refers to the schedule of quantities of a good that will be bought per unit time at various prices
Quantity Demanded
o
Refers to a specific amount that will be demanded per unitof time at a specific place; it also refers to a point on thedemand curve
Demand Function
o
Shows the relationship between the quantity of thecommodity demanded and the price per unit of thiscommodity
Law of Demand
o
The quantity of a good demanded is inversely related tothe good’s price, other things constant.
Example of a Demand Curve
p(0, b)p = f(q) 0 (a,0) q
The slope of a supply curve is usually negative, as price increases,quantity demanded decreases and vice-versa.
The
y
-intercept of the demand curve (0,
b
) represents the highest price at which a consumer is willing to pay for the commodity.The
x
-intercept, (
a
, 0), represents, the quantity that would bedemanded if the good is free.
Sample Problems:

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