L4LinesGraphs - Introduction to Microeconomics Lecture 4...

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1 Introduction to Microeconomics Lecture 4 Maths: Lines and Graphs Simon Cowan Outline z Lines and slopes z Drawing nonlinear curves z Solving quadratic equations graphically z (We’ll draw indifference curves in Lecture 8 on Functions) z Applications: z demand and supply z budget lines Drawing lines Take the demand function used in Lecture 3 q = A Bp , q is the number of units bought, p is the price and A > 0 and B > 0 . This holds when 0 p A B If p > A B then q = 0 This holds when 0 A / B . If > A / B then 0 . First, we shall follow the convention in economics of inverting the demand function to obtain price in terms of quantity. To do this add Bp to both sides, subtract q , and divide both sides by B : (Inverse) demand: () A q p B = Graph of the (inverse) demand line: p = ( A q )/ B p A / B Quantity is on the horizontal axis and price is on the vertical axis. We are only interested in non-negative values of p and q . When q = 0 we have p = A / B. This is the vertical intercept of the function q A vertical intercept of the function. When q = A , p = 0 . Thus q = A is the horizontal intercept of the function. The inverse demand function is the straight line between these two points. 0
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L4LinesGraphs - Introduction to Microeconomics Lecture 4...

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