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Chapter 2

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CBUS 001
Sebastien Breau

Principles of Microeconomics Market EquilibriumMARKET EQUILIBRIUMLinear EquationsWe can analyze Demand and Supply and Market equilibrium with linear equationsThese are equations of the form YabX where a is the Yintercept ie the value of Y when X is zero and b is the slope riserunDYDX of the functionWe know that the function is linear ie a line because the slope is constantThe slope is negative the Y falls with an increase in X and is positive if Y increases with an increase in XExample Suppose that the following equations describe the market Demand for and Supply of a Economics bookDemand P12002QSupply P3001QP is in s and Q is in unitsDDSSWe dont need to label these equations Demand and Supply since the negative slope of the first one and the positive slope of the second one tell us that they are Demand and Supply respectivelySince equilibrium implies that PP we simply equate the righthand side of each DSequation to find equilibrium EquilibriumPP 12002Q3001QDS 9003QQ300Q300 P120023060or P30023060P must be the same for Demand and Supply at equilibrium QThe following diagram depicts these equations and this equilibriumNote that 120 is the vertical Y intercept for Demand and that 30 is the vertical intercept for SupplyThe horizontal intercept for Demand is 120026001
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