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Appendix_Chapter 3

# Appendix_Chapter 3 - quantity for the corresponding market...

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Appendix to Chapter 3 – The Algebra of Supply and Demand Introduction to Microeconomics (E, F, G) Fall 2008 Prepared by Sylvie Démurger PURPOSE: The purpose of this short Appendix is to translate supply and demand analysis into algebraic terms. The advantage of the algebraic framework over the geometric framework is that it greatly simplifies computing the numerical values of equilibrium prices and quantities. The basis is to express the supply and demand curves in the following terms: - Demand curve : P = a + bQ d - Supply curve : P = c + dQ s where P denotes the price of the good, Q d denotes its quantity demanded, Q s its quantity supplied, and a, b, c and d are parameters. Then, solving this simultaneous equations system will provide the equilibrium price and
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Unformatted text preview: quantity for the corresponding market. EXERCISE: If the supply and demand curves for a market are given by P = 4 + 4Q s and P = 16 - 2Q d respectively, find the equilibrium price and quantity for this market. HOW TO PROCEED: 1. Try to find the solution of the above exercise. 2. If you cannot find it easily, then read carefully the whole Appendix provided in the textbook (Frank, Robert H. and Ben S. Bernanke (2006): Principles of Microeconomics , 3rd edition, McGraw-Hill), pages 91-93. 3. Practice by doing exercises. 4. If you need further assistance and help in understanding this Appendix, please feel free to ask....
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