Supply, Demand, and Equilibrium: The Algebra

6 Pages Posted: 21 Oct 2008

See all articles by Peter Marcel Debaere

Peter Marcel Debaere

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Abstract

This technical note refreshes the algebraic representation of linear demand and supply, how to account for shifting curves, and how to include taxes. This is part of the refresher course in Economics at Darden.

Excerpt

UVA-G-0592

Supply, Demand, and Equilibrium: The Algebra

Understanding supply and demand is invaluable for any structured analysis of the real markets where firms compete. So far, to develop intuition we have drawn these markets. We approximated supply and demand with straight lines. In this note, we calculate the exact price and quantity at which goods are bought and sold. To do so, we use algebra and represent supply and demand with an equation instead of a graph.

Equation of a Straight Line

Figure 1. Straight line.

Figure 1 plots a line. It touches both the vertical Y-axis and the horizontal X-axis. With the help of the X-axis and the Y-axis, we can define any point on the graph. A double (X,Y) contains the coordinates of any point. The variables X and Y tell us how far a point lies from the origin, which is the point (0.0) where the X-axis and Y-axis meet. As we see, our line cuts the X-axis and Y-axis respectively at the horizontal and vertical intercept at the points (4,0) and (0.2).

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Keywords: Supply Demand

Suggested Citation

Debaere, Peter Marcel, Supply, Demand, and Equilibrium: The Algebra. Darden Case No. UVA-G-0592, Available at SSRN: https://ssrn.com/abstract=1279983

Peter Marcel Debaere (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/html/direc_detail.aspx?styleid=2&id=5794

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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