Supply and

Demand

Curves

-Clearly,

both

supply and

demand

are

functions

of

price,

p.

So,

graphically,

this

means

that

price

is the

independent

variable

(horizontal

axis).

However,

many

economists stiU

place price

on

the

vertical axis

(dependent

variable),

creating inconsistencies.

Some texts

do it

one way & others

do

it

the

other

way. Therefore,

you

will have

to have to know

both

ways.

-When

using

price

as

the

independent

variable

p,

use

functional

notation

for

the

supply

&

demand

curves, S(p)

&

D(p)

-S(p)

represents

the quantity,

x,

manufacturers

are

willing

to

sell

(supply)

at

a

given price,

p,

for that item.

-D(p)

represents

the

quantity,

x, consumers

are willing to

buy

at

a

given

price,

p,

for

that

item.

-In

the world of

stocks

&

related

trading,

these

are known

as tho

bid

price (price

at

which a

trader

is

willing

to

pay)

and

the asked

price

(price

at which a

trader is

willing to

sell). There could

be a

large

or small

"gap"

between

these

prices.

Eqilibrium

noint

-This

is

the

price,

po

ilnd

quantlty,

xo, that markets

usually settle,

ideally.

But,

in reality,

it

usually

is

near

that

point.

-Graphically,

this is

the

point

where the

supply and demand curves

intersect.

[S(p)

:

D(p)]. To find

this

point,

set the

supply

&

demand

equations

equal

to each other

and

solve

for

the

x

&

p.

-Let's

look

at a

graphical

representation:

,,'

5(P)

(

P.',

Fe)

5e*D4

(x)

I

I

oe)

!-r

Ir