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Economics 2: Spring 2014

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Economics 2: Spring 2014

J. Bradford DeLong <[email protected]>; Maria Constanza Ballesteros <[email protected]>; Connie Min <[email protected]>

http://delong.typepad.com/sdj/econ-2-spring-2014/

Economics 2: Spring 2014: Supply and Demand Algebra: Demand and Equilibrium

http://delong.typepad.com/sdj/econ-1-spring-2012/

February 3, 2014, 4-5:30

101 Barker, U.C. Berkeley

- Supply:
- P = Ps0 + a x Qs
- P = Ps1 x Qs(a)

- Demand:
- P = Pd0 - b x Qd
- P = Pd1 x Qd(-b)

- Supply:
- P = Ps0 + a x Qs
- P = Ps1 x Qs(a)

- Demand:
- P = Pd0 - b x Qd
- P = Pd1 x Qd(-b)

- Which means:
- To call forth 1 more unit of demand requires a price decrease of b
- To call forth a 1% increase in quantity demanded requires a price decrease of b%

- Suppose: P = Pd0 - b x Qd
- Demand curve for dragon-training missions is:
- Pd0 = 100
- b = 2

- Suppose: P = Pd0 - b x Qd
- Pd0 = 100 ::b = 2

- A. 55
- B. 30
- C. 100
- D. 35
- E. None of the Above

- Suppose: P = Pd0 - b x Qd
- Pd0 = 100 ::b = 2

- A. 55
- B. 30
- C. 100
- D. 35
- E. None of the Above

- Linear Case:
- P = Ps0 + a x Qs
- P = Pd0 - b x Qd

- Suppose: P = Ps0 + a x Qs :: P = Pd0 - b x Qd
- Supply: Ps0 = 10; a = 7
- Demand: Pd0 = 100; b = 2

- A. Yes
- B. No
- C. There is not enough information to calculate…

- Suppose: P = Ps0 + a x Qs :: P = Pd0 - b x Qd
- Supply: Ps0 = 10; a = 7
- Demand: Pd0 = 100; b = 2

- A. Yes
- B. No
- C. There is not enough information to calculate…

- Suppose: P = 10 + 7 x Qs :: P = 100 - 2 x Qd

- A. Yes, it is.
- B. No, there is excess demand, and the price is going to rise
- C. No, there is excess demand, and the price is going to fall
- D. No, there is excess supply, and the price is going to rise
- E. No, there is excess supply, and the price is going to fall

- Suppose: P = 10 + 7 x Qs :: P = 100 - 2 x Qd

- A. Yes, it is.
- B. No, there is excess demand, and the price is going to rise
- C. No, there is excess demand, and the price is going to fall
- D. No, there is excess supply, and the price is going to rise
- E. No, there is excess supply, and the price is going to fall

- Linear Case:
- P = Ps0 + a x Qs
- P = Pd0 - b x Qd

- Solve:
- Pd0 - b x Qd = Ps0 + a x Qs
- Pd0 - Ps0 = (a+b) x Qs

- Equilibrium
- Q = (Pd0 - Ps0 )/(a+b)

- Equilibrium: Q = (Pd0 - Ps0 )/(a+b)

- Suppose: P =10 + 7 x Qs :: P = 100 - 2 x Qd

- A. 10
- B. 30
- C. 74.29
- D. 35.71
- E. None of the Above

- Suppose: P =10 + 7 x Qs :: P = 100 - 2 x Qd

- A. 10
- B. 30
- C. 74.29
- D. 35.71
- E. None of the Above
- Remember our equation: Q = (Pd0 - Ps0 )/(a+b)
- The gap between the zero-quantity reservation prices—(Pd0 - Ps0 )—is 90.
- The sum of the slopes is 9
- The equilibrium quantity is (the gap between the zero-quantity reservation prices)/(the sum of the slopes) = 90/9 = 10

- Linear Case:
- P = Ps0 + a x Qs
- P = Pd0 - b x Qd

- Solve:
- Pd0 - b x Qd = Ps0 + a x Qs
- Pd0 - Ps0 = (a+b) x Qs

- Equilibrium
- Q = (Pd0 - Ps0 )/(a+b)

- Linear Case:
- P = Ps0 + a x Qs
- P = Pd0 - b x Qd
- Q = (Pd0 - Ps0 )/(a+b)

- Solve
- P = Ps0 + a x ((Pd0 - Ps0 )/(a+b))
- P = (b/(a+b))Ps0 + (a/(a+b))Pd0

- P = (b/(a+b))Ps0 + (a/(a+b))Pd0

- Suppose: P =10 + 7 x Qs :: P = 100 - 2 x Qd

- A. 55
- B. 30
- C. 74.29
- D. 35.71
- E. None of the Above

- Suppose: P = 10 + 7 x Qs :: P = 100 - 2 x Qd

- A. 55
- B. 30
- C. 74.29
- D. 35.71
- E. None of the Above

- Equilibrium: P = (b/(a+b))Ps0 + (a/(a+b))Pd0Q = (Pd0 - Ps0 )/(a+b)

- Equilibrium Quantity:
- Q = (Pd0 - Ps0 )/(a+b)

- Equilibrium Price:
- P = (b/(a+b))Ps0 + (a/(a+b))Pd0

- Equilibrium: Q = (Pd0 - Ps0 )/(a+b) :: P = (b/(a+b))Ps0 + (a/(a+b))Pd0

- Suppose: P =40 + 7 x Qs :: P = 150 - 4 x Qd

- A. 55
- B. 30
- C. 110
- D. 50
- E. None of the Above

- Suppose: P =40 + 7 x Qs :: P = 150 - 4 x Qd

- A. 55
- B. 30
- C. 110
- D. 50
- E. None of the Above

- The ZQ prices are 40 and 150
- Since demand is moreelastic, the price will be closer to the ZQ demand value…
- Since the slopes are 4 and 7, the equilibrium price will be 4/11 of the way from one ZQ value and 7/11 of the way from the other…
- THAT MEANS 110