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Unformatted text preview: Formula Sheet that you can use for quizzes and exams. Individual ordinary demand and Inverse demand Demand Q = f ( P, { I,p,A,n } ) Ordinary Demand Q = D MP D = α + α 1 I + α 2 p + α 3 A + α 4 n All factors but P affect D, the reason P is outside When only D changes demand changes, P does not change demand When A and n goes up D goes up, demand goes up For normal good α 1 positive, I goes up demand goes up Normal good α 1 is positive, I goes up D goes up, demand goes up Inferior good α 1 negative, I goes up D goes down, demand goes down Substitute good, α 2 positive, p goes up, D goes up, demand goes up Complement good, α 2 negative, p goes up, D goes down, demand goes down Inverse Demand P = D M 1 M Q = a m d Q Where a = D M and m d = 1 M –absolute slope of inverse demand for given M, D increase implies a increase, demand increases . Supply Supply Q = f ( P, { T,p,w,t a ,s u ,n } ) Supply Q = S + NP S = β + β 1 T + β 2 p + β 3 w + β 4 t a + β 5 s u + β 6 n all factors but P affect S, the reason P is outside S increases, supply increases, P does not affect S, P does not change supply T, n, and s u all increase S, supply increases β 3 and β 4 are negative, their increase, decreases S, supply goes down β 2 is negative for substitute, p goes up supply goes down β 2 is positive for complement, p goes up supply goes up Inverse Supply P = S N + 1 N Q = b + m s Q Where b = S N and m s = 1 N –the slope of inverse supply When S increases, b decreases, b goes down supply goes up 1 Equilibrium from Inverse demand and supply Q * = a b m d + m s P * = bm d + am s m d + m s = b + m s Q * = a m d Q * Change in equilibrium price and quantity Change in demand DD when fixed factors change Variable P p I A n Action P ↑ p ↑ I ↑ A ↑ n ↑ Results Q ↓ DDU DD ↑ SG DD ↑ NG DD ↑ DD ↑ DD ↓ CG DD ↓ IG Change in equilibrium P and Q when DD and SS change DDU DD ↑ DD ↓ SSU Q ↑ P ↑ Q ↓ P ↓ SS ↑ Q ↑ P ↓ Q ↑ P ? Q ? P ↓ SS ↓ Q ↓ P ↑ Q ? P ↑ Q ↓ P ? a ↑ = ⇒ D ↑ What causes a to go up? a is positively related with A , n , p of substitute, I for normal a is negatively related with p of complement, I for inferior b ↑ = ⇒ S ↓ What causes b to go up? b is positively related with w , t a , and p substitute b is negatively related with T , s u , n , and p complement 2 Change in equilibrium quantity and price : ∆ Q * = ∆ a ∆ b m d + m s ∆ P * = m s ∆ a + m d ∆ b m d + m s Change in demand only With ∆ b = 0, ∆ a > 0 = ⇒ DD ↑ , ∆ Q * and ∆ P * both positive With ∆ b = 0, ∆ a < 0 = ⇒ DD ↓ , ∆ Q * and ∆ P * both negative Change in supply only With ∆ a = 0, ∆ b > 0 = ⇒ SS ↓ , ∆ Q * < 0 and ∆ P * > With ∆ a = 0, ∆ b < 0 = ⇒ SS ↑ , ∆ Q * > 0 and ∆ P * < Simultaneous change in demand and supply When ∆ a and ∆ b both nonzero, play ∆ Q * and ∆ P * games When ∆ a and ∆ b both positive, DD ↑ and SS ↓ = ⇒ ∆ P * > , ∆ Q * ??...
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 Fall '11
 PAULFERRARO

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