Business Economics Notes: Application and Problems on Suppy and Demand (2.1)

Evaluate the following functions:
a. D fn electric shavers is D = 500 - 25P
    if P range or scope is 1 to 15


*Using linear programming to come up with functional equation

• Substitute P (price) into the equation

P(y)	D(x)	computation
1	475	500-25(1)
2	450	500-25(2)
3	425	500-25(3)
4	400	500-25(4)
5	375	500-25(5)
6	350	500-25(6)
7	325	500-25(7)
8	300	500-25(8)
9	275	500-25(9)
10	250	500-25(10)
11	225	500-25(11)
12	200	500-25(12)
13	175	500-25(13)
14	150	500-25(14)
15	125	500-25(15)

Notice P↑ D↓ which is in accordance to the Theory of Demand

NOTE: NOT sellable in the Philippines because

1. too expensive to use here because it runs by electricity
2. we want to wet our face

b. D = fn unskilled labor 

   l = 400

         2w²

     where:

     l = labor hours per month

    w = wage rate

     if w range or scope is 1 to 13

w(y)	l(x)	computation
1	200	400/(2*(1)^2)
2	50	400/(2*(2)^2)
3	22.22222222	400/(2*(3)^2)
4	12.5	400/(2*(4)^2)
5	8	400/(2*(5)^2)
6	5.555555556	400/(2*(6)^2)
7	4.081632653	400/(2*(7)^2)
8	3.125	400/(2*(8)^2)
9	2.469135802	400/(2*(9)^2)
10	2	400/(2*(10)^2)
11	1.652892562	400/(2*(11)^2)
12	1.388888889	400/(2*(12)^2)
13	1.183431953	400/(2*(13)^2)

W↑ L↓ 

So even in Labor, theory of demand applies

Supply equation

c. Supply of Wheat

    S = 2 + 2P

    if P range is 1 to 10 

P(y)	S(x)
1	0
2	2
3	4
4	6
5	8
6	10
7	12
8	14
9	16
10	18

Notice P↑ S↑ which is in accordance to the Supply Function

This is Price Control as another application of theory of demand

But government can't always control price because it will lose supplier

d. D for computers
    D = - 700P + 200Y - 500S + 0.01A 
    where:
    D= demand for computers
    Y = income
    S = average price of software
    P = average price of software
    A = advertising


   NOTE: 

• + because can increase demand
• - because can decrease demand

complementary goods = buy 1 and have to buy the other

substitution = takes place usually when price is high

• example: san miguel beer to gold eagle

Objective:

• Buyer - satisfaction
• Seller - Make profit

Theories on profit

1. compensation theory - reward for risk taking

• Government - Taxes
• Here we have MCIT (2%) which you pay even in you incur loss you pay
• Employees - Wages
• Creditors - Interest
• Property Owner - Rent 
• Owner - Profit 

2. Innovation theory

   Innovation→Growth

• Joseph Schumpeter
• Innovation as the critical dimension of economic change

   Innovation→Costly

•    advantage of big corporations over small and medium corporation

   Innovation - profit > exclusive right

3. Market Intervention or distortion

• unequal distribution of resources
• Example:
• in politics mostly relatives

4. Determine equilibrium (Q)

    D = 100 - 20P

    S = 20 + 20P

    D_{p = Domestic Demand = 100 - 20P}

    D_{f  = Foreign Demand = -180 - 20P}

    S_{p = Domestic Supply = 20+20P}

     S_{f = Foreign Supply = 40+20P}

Since in equilibrium, D = S so place together both function
100 - 20P = 20+20P
100 - 20 = 20P + 20P
80 = 40P
40    40
P = 2



D =100 - 20 (2)
   = 60 
S = 20 + 20 (2) = Q 

_{Foreign Setting/Globalization} 

Dp + Df = Sp + Sf

100 - 20P + ( -180 - 20P) = 20+20P + (40+20P)
100 - 20P - 80 - 20P = 20 + 20P + 40 + 20P
100 - 80 -20 -40 = 20P + 20P + 20P + 20P
120 = 80P
 80      80
P = 1.5


-180 - 40P = Q
-180 - 40(1.5) = Q
-180 - 60 = 120