Linear supply and demand curves are shown in Figure 1.59,...

Linear supply and demand curves are shown in Figure $1.59,$ with price on the vertical axis. (a) Label the equilibrium price $p_{0}$ and the equilibrium quantity $q_{0}$ on the axes. (b) Explain the effect on equilibrium price and quantity if the slope, $\Delta p / \Delta q,$ of the supply curve increases. Illustrate your answer graphically. (c) Explain the effect on equilibrium price and quantity if the slope, $\Delta p / \Delta q,$ of the demand curve becomes more negative. Illustrate your answer graphically.

Linear supply and demand curves are shown in Figure $1.59,$ with price on the vertical axis.
(a) Label the equilibrium price $p_{0}$ and the equilibrium quantity $q_{0}$ on the axes.
(b) Explain the effect on equilibrium price and quantity if the slope, $\Delta p / \Delta q,$ of the supply curve increases. Illustrate your answer graphically.
(c) Explain the effect on equilibrium price and quantity if the slope, $\Delta p / \Delta q,$ of the demand curve becomes more negative. Illustrate your answer graphically.

Key Concepts

Market Equilibrium

Market equilibrium occurs where the supply and demand curves intersect, indicating the price (equilibrium price) and quantity (equilibrium quantity) at which the quantity supplied equals the quantity demanded. This equilibrium helps establish a baseline for analyzing how shifts or changes in either curve affect market outcomes.

Slope of Curves (Elasticity and Responsiveness)

The slope of the supply or demand curve reflects the responsiveness of quantity supplied or demanded to changes in price. A steeper supply curve (with a higher ?p/?q) suggests that even significant price changes only result in small changes in quantity supplied, indicating lower supply elasticity. Similarly, a more negatively sloped demand curve signifies that changes in price result in smaller changes in the quantity demanded, indicating lower demand elasticity. Understanding these slopes is crucial for predicting how equilibrium adjusts in response to shifts in either the supply or demand conditions.

Supply Curve

The supply curve represents the relationship between price and the quantity that producers are willing to supply. It generally slopes upward, indicating that as prices increase, producers are willing to supply a larger quantity of the good. This curve helps in analyzing how changes in various conditions (like production costs or supply elasticity) affect the quantity supplied at each price level.

Demand Curve

The demand curve shows the relationship between price and the quantity that consumers are willing to purchase. Typically, it slopes downward, meaning that as prices decrease, consumers purchase more of the good. This curve is essential for understanding consumer behavior and market responses to changes in preferences, income, or other factors affecting demand.

Transcript

00:02 Hello, in this problem we are presented with a linear and demand curves.

00:13 This represents the supply, let's say, and the demand is, let's say this one, this is the demand function.

00:23 Alright, so this is, we have p on this axis and q.

00:34 On this axis.

00:41 The graph of the supply function is this is the supply and this is the demand.

00:52 Okay, function here.

00:54 We need to label the equilibrium price p0 and the equilibrium quantity on the axes.

01:05 So, what is the equilibrium price? it is the price and the quantity when the demand equals supply.

01:20 When does the demand equals supply? well, at a certain price p, this demand is the same as on the supply function, the quantity that the producers are willing to supply.

01:37 So the demand function describes the quantity of products that the consumers are willing to buy at a certain price speed.

01:47 So the intersection point between the demand and supply will give us these two points on the axes.

01:57 Sorry.

02:00 Okay, so this point here is going to be our equilibrium quantity and this here is going to be our equilibrium price.

02:16 Now we needed to plot these and this solves part a.

02:25 Now we take the same graph and in part b they say what happens when the slope of the supply curve increases.

02:43 So this was the old supply function.

02:52 Its slope will increase so the new supply function will increase so the new supply function would be something like let's say this.

03:02 This is the new supply.

03:03 And the demand has remained as it is in part a.

03:14 So what happens with the old q0 and p0? we now have a new equilibrium point which is determined by this point here.

03:31 So the new, the new equilibrium quantity will be here, labeled as q1, and the new price will be labeled with p1 interpretation.

03:50 When the supply function becomes steeper, that is when its slope increases, the equilibrium quantity decreases, and the price, the equilibrium price rises.

04:10 So what we have is this situation here...

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