Supply, Demand, and Equilibrium: The Algebra

Abstract

This technical note refreshes the algebraic representation of linear demand and supply, how to account for shifting curves, and how to include taxes. This is part of the refresher course in Economics at Darden. Excerpt UVA-G-0592 Supply, Demand, and Equilibrium: The Algebra Understanding supply and demand is invaluable for any structured analysis of the real markets where firms compete. So far, to develop intuition we have drawn these markets. We approximated supply and demand with straight lines. In this note, we calculate the exact price and quantity at which goods are bought and sold. To do so, we use algebra and represent supply and demand with an equation instead of a graph. Equation of a Straight Line Figure 1. Straight line. Figure 1 plots a line. It touches both the vertical Y-axis and the horizontal X-axis. With the help of the X-axis and the Y-axis, we can define any point on the graph. A double (X,Y) contains the coordinates of any point. The variables X and Y tell us how far a point lies from the origin, which is the point (0.0) where the X-axis and Y-axis meet. As we see, our line cuts the X-axis and Y-axis respectively at the horizontal and vertical intercept at the points (4,0) and (0.2). . . .