Business Economics Notes: Application and Problems on Suppy and Demand (2.1)

Evaluate the following functions:
a. D fn electric shavers is D = 500 - 25P
    if P range or scope is 1 to 15


*Using linear programming to come up with functional equation


  • Substitute P (price) into the equation
P(y)
D(x)
computation
1
475
500-25(1)
2
450
500-25(2)
3
425
500-25(3)
4
400
500-25(4)
5
375
500-25(5)
6
350
500-25(6)
7
325
500-25(7)
8
300
500-25(8)
9
275
500-25(9)
10
250
500-25(10)
11
225
500-25(11)
12
200
500-25(12)
13
175
500-25(13)
14
150
500-25(14)
15
125
500-25(15)

Notice P↑ D↓ which is in accordance to the Theory of Demand

NOTE: NOT sellable in the Philippines because


  1. too expensive to use here because it runs by electricity
  2. we want to wet our face




b. D = fn unskilled labor 
   l = 400
         2w2
     where:
     l = labor hours per month
    w = wage rate
     if w range or scope is 1 to 13

w(y)
l(x)
computation
1
200
400/(2*(1)^2)
2
50
400/(2*(2)^2)
3
22.22222222
400/(2*(3)^2)
4
12.5
400/(2*(4)^2)
5
8
400/(2*(5)^2)
6
5.555555556
400/(2*(6)^2)
7
4.081632653
400/(2*(7)^2)
8
3.125
400/(2*(8)^2)
9
2.469135802
400/(2*(9)^2)
10
2
400/(2*(10)^2)
11
1.652892562
400/(2*(11)^2)
12
1.388888889
400/(2*(12)^2)
13
1.183431953
400/(2*(13)^2)

W↑ L↓ 
So even in Labor, theory of demand applies

Supply equation
c. Supply of Wheat
    S = 2 + 2P
    if P range is 1 to 10 
P(y)
S(x)
1
0
2
2
3
4
4
6
5
8
6
10
7
12
8
14
9
16
10
18



Notice P↑ S↑ which is in accordance to the Supply Function

This is Price Control as another application of theory of demand

But government can't always control price because it will lose supplier

d. D for computers
    D = - 700P + 200Y - 500S + 0.01A 
    where:
    D= demand for computers
    Y = income
    S = average price of software
    P = average price of software
    A = advertising


   NOTE: 


  • + because can increase demand
  • - because can decrease demand
complementary goods = buy 1 and have to buy the other
substitution = takes place usually when price is high
  • example: san miguel beer to gold eagle

Objective:


  • Buyer - satisfaction
  • Seller - Make profit
Theories on profit

1. compensation theory - reward for risk taking


  • Government - Taxes
    • Here we have MCIT (2%) which you pay even in you incur loss you pay
  • Employees - Wages
  • Creditors - Interest
  • Property Owner - Rent 
  • Owner - Profit 
2. Innovation theory
   Innovation→Growth


  • Joseph Schumpeter
    • Innovation as the critical dimension of economic change
   Innovation→Costly
  •    advantage of big corporations over small and medium corporation
   Innovation - profit > exclusive right

3. Market Intervention or distortion
  • unequal distribution of resources
    • Example:
      • in politics mostly relatives
4. Determine equilibrium (Q)
    D = 100 - 20P
    S = 20 + 20P
    Dp = Domestic Demand = 100 - 20P
    Df  = Foreign Demand = -180 - 20P
    Sp = Domestic Supply = 20+20P
     Sf = Foreign Supply = 40+20P

Since in equilibrium, D = S so place together both function
100 - 20P = 20+20P
100 - 20 = 20P + 20P
80 = 40P
40    40
P = 2



D =100 - 20 (2)
   = 60 
S = 20 + 20 (2) = Q 



Foreign Setting/Globalization 


Dp + Df = Sp + Sf


100 - 20P + ( -180 - 20P) = 20+20P + (40+20P)
100 - 20P - 80 - 20P = 20 + 20P + 40 + 20P
100 - 80 -20 -40 = 20P + 20P + 20P + 20P
120 = 80P
 80      80
P = 1.5


-180 - 40P = Q
-180 - 40(1.5) = Q
-180 - 60 = 120