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# Economic
Concepts

### Supply
and Demand

A
*supply curve* describes the relationship between the
quantity supplied and the selling price. The amount of a good
or service that producers plan to sell at a given price during a
given period is called the *quantity supplied*. The quantity
supplied is the maximum amount that producers are willing to supply
at a given price. Quantity supplied is expressed as an amount
per unit of time. For example, if a producer plans to sell
750 units per day at $15 per unit we say that the quantity supplied
is 750 unit per day at price $15.

Similarly, the amount of a good or service that consumers plan to
buy at a given price during a given period is called the *quantity
demanded*. The quantity demanded is the maximum amount
that consumers can be expected to buy at a given price, and it also
is expressed as amount per unit of time.

The *equilibrium price* is the price at which the quantity
demanded equals the quantity supplied. The *equilibrium
quantity*. is the quantity bought and sold at the equilibrium
price. If the curves are graphed on the same coordinate system,
the point of intersection is the* equilibrium point*, and is
where supply equals demand. If the price is below equilibrium
there will be a shortage and the price will rise, while if the price
is above equilibrium there will be a surplus and the price will
fall. If the price is at equilibrium it will stay there unless
other factors enter to cause changes.

#### Example 8

Assume that the supply
function is _{} and the demand function is _{}. The breakeven point is found by setting
equating the two functions and then solving the resulting equation:

_{}

This gives the first
coordinate; the second coordinate is _{} (or, using the demand equation, _{})

#### Example 9

We make the following
assumptions about supply and demand.

- The supplier will
produce 1000 units when the selling price is $20 per unit and
will produce 1500 units if the price is $25 per unit.
- Consumers will demand
1500 units when the selling price is $20 per unit but that the
demand will decrease by 10% if the price increases by 5%.
- Both supply and demand
functions are linear.

Determine the supply
function, the demand function and the equilibrium point.

1)
To determine the supply function, we use a _{} coordinate system and write the equation of
the line through the points (1000,20) and (1500,25).

_{}

2)
For the demand function, one point is (1500,20). If
the price increases 5% to $21, the demand will decrease 10% to 1350.
Thus the second point is (1350,21) and we can now determine the
demand function. _{}