uni/economics

Demand & supply graph

Info

Demand and Supply curves are used to illustrate the behavior of buyers & sellers in market interactions.

Demand curve formula

Demand curve formula

$\text{P}=\text{a}-{\text{bQ}}_{\text{d}}$

• $\text{P}$: price; exogenous variable
  • exogenous variable: a factor whose value is determined outside the economic model being studied
    • influences the system or internal variables but is not affected by them in return
• $\text{a}$: $y$-intercept (choke price)
• $-\text{b}$: slope
• ${\text{Q}}_{\text{d}}$: quantity demanded; endogenous variable
  • endogenous variable: a factor whose value is determined or influenced by other variables inside an economic model

Important

The equation should ALWAYS start with $\text{P}$; use algebra to rearrange if it doesn’t.

Example

$P=7.5-\frac{1}{2}{\text{Q}}_{\text{d}}$

• If P = \8$,$\text{Q}_\text{d}$ is still zero because it’s above the choke price

${\text{Q}}_{\text{d}}=15-2P$ if and only if $0\le P\le 7.5$.

Link to original

• P to D: buyers
• 0 to S: sellers
• P: price
  • the quantity buyers want to buy = quantity sellers are willing to sell
  • at other points, these aren’t aligned → pressure on price to increase or decrease
• intersection: equilibrium of the market
• asterisks: equilibrium
  • “P star” or “P prime”

Info

This is a static snapshot of the market; markets are dynamic.