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L4LinesGraphs

# L4LinesGraphs - Introduction to Microeconomics Lecture 4...

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Introduction to Microeconomics Lecture 4 Maths: Lines and Graphs Simon Cowan

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Outline Lines and slopes Drawing nonlinear curves Solving quadratic equations graphically (We’ll draw indifference curves in Lecture 8 on Functions) Applications: demand and supply 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 . 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 - =

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Graph of the (inverse) demand line: p = ( A q )/ B q p A / B A 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. 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
Slope of inverse demand q p A / B A p = - A / B q = A The gradient (or slope) is / 1 p A B q A B - = = - 0

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L4LinesGraphs - Introduction to Microeconomics Lecture 4...

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