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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

too expensive to use here because it runs by electricity
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}

D_{p +}D_{f =}S_{p +}S_f

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

Business Economics Notes: Equilibrium (1.2)

Theories of Equilibrium (Ideal situation where D=S)
*Disequilibrium = inequality or absence in equality

1. Cobweb Theory - the market adjusts to equilibrium over time

* NO stable growth

2. Say's Law of Markets (by Jean Baptiste Say) - Production (S) creates its own market (D)

If D>S then P↑

Inflation - P↑
Demand Push v. Cost Pull (i.e. Salary↑ - P↑)

If D<S, non-satisfaction of needs

Deflation - reduction in price level (i.e. rollback of prices) - P↓
Profit P↓

3. Actual price Theory - whatever P is paid is the equilibrium

D = f(P)
S= f (P)
D = a-bP

a = D-intercept or level of D when P is 0
b = slope of the D function

When P is zero
Item = FREE good/service

S = a + b P (NOTE: + because direct relationship)
a = s intercept or level of S when P is zero
b = slope of S function

Review Business Economics Notes: Business, Demand and Supply Analysis, Determinants of Demand and Supply (1.1)

Business Economics Notes: Business, Demand and Supply Analysis, Determinants of Demand and Supply (1.1)

1. Business ______ ( I missed this!)
Fixed Cost
2. Business has a cost < Variable Cost (Other Costs: Sociable Cost, Opportunity Cost, Regrettable Cost by Tobin like wars)

3. Business as a consequence - should be desirable

Principles:

Demand and Supply Analysis

D_f = Demand Function = D = F(P) (The line/curve in the graph)