Supply and Demand

Exercises: . For problems 14, given the equations of the supply and demand curves: 3. Evaluate the curves at g\". b. Find the market equilibrium. 1. Given supply price 2 3qmm'ty + 10 and demand price 2 2quantity + 30. with go 2 6. 2. Given p3 = 2g + 20 and pd = q + 200. with go = 40. 3. Given sumlyp'rice = .2q + 157.3 and demand price = 0.qu + 3468.9. with 90 = 6000. 4. Given p, = 0.0035q + 23 and pd = [}.0027q + 463. with go = 46, 798. Considerthe example of gasoline prices- Different prices will make some areas of exploration and production protable or not protable. When prices go up, new wells get drilled. If prices go down too far, stripper wells cease being protable and are shut down. From the consumer side, when prices go up, more people look at mass transit or getting a more fuel-efcient vehicle. When prices go down, it is easier to think about a road trip. The law of supply looks at the economy from the supplier's point of view. Price and quantity available for sale always move in the same direction. If the price goes up we can assume that all the old suppliers are still willing to sell at the higher price, but some more suppliers may enter the malket. If the price goes down, no new suppliers will enter the market, and some old suppliers may leave the market. For a linear model change in price slope of supply curve = change in quantity supplied. _ Ag The law of demand looks at the economy from the consumer's point of view. Price and quantity availabie for sale always move in the opposite direction. If the price goes down we can assume that all the old consumers are still willing to buy at the lower price, but some more consumers may enter the market. If the price goes up, no new consumers will enter the market, and some old consumers may leave the market. For a linear model change in price slope 03' mi curse = always in quantity dancnded = Aq I This intersection ofthe supply and the demand functions is called the point ofmcrlret equilibrium. or equilibrium pain t. - The price at this point is referred to as the equilibrium price'. - The standard economic theory says that a free and open market will nature ilysettle on the equilibrium p rice. Supply prtce Equl ll brium Demand price