# 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↑ Dwhich 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↓

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

NOTE:

• + because can increase demand
• - because can decrease demand
substitution = takes place usually when price is high
• example: san miguel beer to gold eagle

Objective:

• 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
Dp = Domestic Demand = 100 - 20P
Df  = Foreign Demand = -180 - 20P
Sp = Domestic Supply = 20+20P
Sf = 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