Unformatted text preview: ty supplied decreases as P increases What might y be? i.e. supply curve shifts leftward as y increases Coefficient is a measure of sensitivity: a large coefficient (in magnitude) > large shift in the supply curve Cost parameter Price of an alternative product Unfavorable environmental factor Supply as a function of many variables Example: Qs = 100 + 2 P + 10 x 12 y 100 + 10 x 12 y: supply curve intercept on the horizontal axis Increasing x will increase this intercept (i.e. rightward shift in supply curve) Increasing y will decrease this intercept (i.e. leftward shift in the supply curve) What are supply and demand functions good for? Provide quantitative predictions about market outcomes Examples: Predict prices/sales volumes Predict sizes of changes in price/sales volume due to market shocks Example Demand: Supply: Qd = 100 4 P Qs = 20 + 2 P Equilibrium: Qd = Qs 100 4 P = 20 + 2P 6 P = 120 P = 20 Q = 20 Example
P Supply: Q = 20 + 2P Slope = 1/2 25 20 Demand: Q = 100 4P Slope = 1/4 10 20 20 100 Q Comparative Statics
P Supply: Qs = a + bP Q/P = b P1 P P0 Q0 Q Q1 Q...
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