blanchard_ch03

The supply equation tells us three things 1 the price

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Unformatted text preview: its the yaxis—what we call the supply curve’s “intercept on the y-axis.” 2. As the price rises, the quantity supplied increases. If Q S is a positive number, then the price P must be greater than c. And as Q S increases, the price P becomes larger. That is, as the quantity increases, the minimum price that sellers are willing to accept for the last unit rises. 3. The constant d tells us how fast the minimum price at which someone is willing to sell the good rises as the quantity increases. That is, the constant d tells us about the steepness of the supply curve. The equation tells us that the slope of the supply curve is d. Price (P ) Price (P ) 1. The price at which no one is willing to buy the good (Q D is zero). That is, if the price is a, then the quantity demanded is zero. You can see the price a in Figure 1. It is the price at which the demand curve hits the y-axis—what we call the demand curve’s “intercept on the y-axis.” 2. As the price falls, the quantity demanded increases. If Q D is a positive number, then the price P must be less than a. And as Q D gets larger, the price P becomes smaller. That is, as the quantity increases, the maximum price that buyers are willing to pay for the last unit of the good falls. 3. The constant b tells us how fast the maximum price that someone is willing to pay for the good falls as the quantity increases. That is, the constant b tells us about the steepness of the demand curve. The equation tells us that the slope of the demand curve is –b. Supply Curve Intercept on y-axis is a Supply Intercept on y-axis is c Slope is –b Slope is d c Demand 0 Quantity demanded (QD) Figure 1 Demand curve 0 Figure 2 Supply curve Quantity supplied (QS) 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 75 Mathematical Note Market Equilibrium 75 Using the demand equation, we have Demand and supply determine market equilibrium. Figure 3 shows the equilibrium price (P *) and equilibrium quantity (Q *) at the intersection of the demand...
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