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System of Linear Equations

System of Linear Equations. Vivian and Ashley . Linear Demand Functions. Shows the relationship between QUANTITY DEMANDED of the product and PRICE Q D = a – bP ‘a’ = quantity demanded if price is 0 ‘b’ = slope of curve . Example: Change in ‘a’. Q D = 500 – 10P. Q D = 600 – 10P.

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System of Linear Equations

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  1. System of Linear Equations Vivian and Ashley

  2. Linear Demand Functions • Shows the relationship between QUANTITY DEMANDED of the product and PRICE • QD= a – bP • ‘a’ = quantity demanded if price is 0 • ‘b’ = slope of curve

  3. Example: Change in ‘a’ QD= 500 – 10P QD= 600 – 10P

  4. Graphical representation

  5. Change in ‘a’ =HORIZONTAL shift of the demand curve

  6. Example: Change in ‘b’ QD= 500 – 10P QD= 500 – 20P

  7. Graphical representation

  8. Change in ‘b’ =change in slope of the demand curve*CHANGE IN SLOPE IS DIFFERENT FROM CHANGE IN ELASTICITY

  9. Summary • ‘a’ and ‘b’ will be affected by changes in the non-price determinants of demand • Examples of non-price determinants of demand • Income • Price of other products • Tastes/Preferences

  10. Linear Supply Functions • Shows the relationship between QUANTITY SUPPLIED of the product and PRICE • QS= c – dP • ‘c’ = quantity demanded if price is 0 • ‘d’ = slope of curve

  11. Summary • Almost identical to the demand linear function • Change in ‘c’ = parallel shift in curve • Change in ‘d’ = change in slope of the curve

  12. Summary • ‘c’ and ‘d’ will be affected by changes in the non-price determinants of supply • Examples of non-price determinants of supply • The cost of factors of production • The state of technology • Expectations

  13. MARKET EQUILIBRIUM • The intersection between demand curve and supply curve • QD= QS • a – bP = c – dP

  14. EXAMPLE QD = 2000 – 20P Qs= -400 – 400P

  15. example • QD = 2000 – 200(4) • QD = 1200 units • QS= –400 +400(4) • QS = 1200 units 2000 – 20P = –400 – 400P 2400 = 600P P = $4 or

  16. Graphical representation

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