Inside economics, supply and you may request properties have of numerous sizes and shapes. Although not, for the sake of ease, we often imagine he or she is linear. That makes it much easier to compute them, which often is important to analyze and you will know of a lot basic financial concepts (age.grams., calculating individual excess). Hence, linear consult properties are preferred into the econ kinds (and you can quizzes). The good news is, figuring him or her isn’t nuclear physics. They uses a straightforward five-action procedure: (step one) Record the essential linear means, (dos) select a couple bought pairs off rates and you may quantity, (3) assess the brand new mountain of your own request means, and you may (4) assess the x-intercept.
1) Write-down the fundamental Linear Function
The most basic form of a linear function is y = mx + b. In this equation, m represents the slope of the function, whereas b is the point where the line intersects the y-axis (i.e., the y-intercept). However, in the case of the supply and demand diagram it’s important to note that the x and y axis are flipped. That means our independent variable (i.e., price) is on the y-axis, whereas the dependent variable (i.e., quantity) is on the x-axis. Therefore we’ll have to make some adjustments as we calculate our demand function. But for now, let’s look at a simple demand function for ice cream. We’ll call the basic demand function QD, where P is the price of ice cream. In that case, the basic linear function looks as follows: QD = mP + b.