Shownbelowisanotherdemandfunctionforpriceofapizzapasafunctionofthequantityofpizzas

soldperweek.Thisfunctionmodelsthebehaviorofconsumerswithrespecttopriceandquantity.

0
5
10
15
20
25
30
0 20 40 60 80 100 120
p
r
i
c
e

p
quantityq
2
( ) .0016 .08 24 D q q q = +
Welookedatthisgraphearlierandinterpretedwhattheinterceptstellus.Inthisexample,welladda
newfunctiontoourunderstandingofmacroeconomics.
TheSupplyFunction
Ademandfunctionmodelstherelationshipbetweenpriceandquantitywithrespecttotheconsumer.
Inotherwords,itmodelstheconsumersdemandfortheproduct.Asupplyfunctionmodelsthe
relationshipbetweenpriceandquantitywithrespecttothemanufacturer.
Thegraphbelowshowsasupplyfunctionforthepizzarestaurant.

0
5
10
15
20
25
30
0 20 40 60 80 100 120
p
r
i
c
e

p
quantityq
( ) 0.2 S q q =
Supplycurvesarealsofunctionsofthequantityq,butaredenotedbythenameS(q).Unlikethedemand
curvewhichwasdecreasing,thiscurveincreases.Letslookatpartsofthiscurveclosertoinsurethatit
makessense.

0
5
10
15
20
25
30
0 20 40 60 80 100 120
p
r
i
c
e

p
quantityq
Lowquantitysuppliedat
alowprice
Highquantitysupplied
athighprice
Pointsontheleftsideofthegraphshowalowquantityandalowprice.Thismeansthatatalowprice,
thepizzarestaurantwillbewillingtosupplyalowquantityofpizzasperweek.Pointsontherightsideof
thegraphshowahighpriceandahighquantity.Thismeansthatatahighprice,thepizzarestaurantwill
bewillingtosupplyahighquantityofpizzasperweek.
Thisbehaviorisexactlywhatyouwouldexpectfromasupplier.Butitpointstoaninterestingirony.The
pizzarestaurantwantstosupplyhighernumbersofpizzasperweekwhenthepriceishigh.Butwhen
thepriceishigh,thenumberofpizzassoldislow.Wecanalsolookatitdifferentlybynotingthatwhen
thepriceislow,thepizzarestaurantdoesntwanttosellmanypizzasbuttheconsumerswanttobuy
more.Isthereaquantityandpricewhichwillsatisfythepizzarestaurantandtheconsumer?
TheEquilibriumPoint
Tosatisfyboththeconsumerandthemanufacturer,weneedtofindapriceandquantityoneachcurve
wherethepriceandquantityareexactlythesame.Atthisprice,thequantitydemandedbyconsumersis
thesameasthequantitysuppliedbythemanufacturer.Thispointiscalledtheequilibriumpoint.The
quantityattheequilibriumpointiscalledtheequilibriumquantity.Thepriceattheequilibriumpointis
calledtheequilibriumpoint.
Itiseasytofindthispointonagraph.Wesimplyneedtofindthepointofintersectionofthedemand
functionD(q)andthesupplycurveS(q).Atthispoint,thevalueofpandqarethesameonbothcurves.

0
5
10
15
20
25
30
0 20 40 60 80 100 120
p
r
i
c
e

p
quantityq
EquilibriumPoint
From the graph above, we can see that the equilibrium point is at approximately (64, 12). This is an
estimate based on the scaling on the graph. To find the point of intersection exactly, we need to find
wherethedemandandsupplycurvesareequalalgebraically.
HowToFindtheEquilibriumPointAlgebraically
Thepointofintersectionoftwographsisfoundbysettingthefunctionsformulasequalandsolvingfor
thevariable.Inthecaseofthesupplyanddemandfunctions,weset
( ) ( ) S q D q =
andsolveforq.Thetechniqueofsolvingforqwillvarydependingonwhetherthefunctionsarelinear
ornonlinear.Inourexample,wehavealinearsupplyfunctionandaquadraticdemandfunction.When
wesetthefunctionsequal,weget

2
.2 .0016 .08 24 q q q = +
Thisisaquadraticequationbecausethehighestdegreetermis .Toapplythequadraticformula,we
needtoputthisequationintheform
2
q

2
0 aq bq c + + =
Wecandothisbysubtracting frombothsides: .2q

2
0 .0016 .28 24 q q = +
Thecoefficientsinthisquadraticequationarea=.0016,b=.28,andc=24.Substitutingthesevalues
intothequadraticformula

2
2
4
2
( .28) ( .28) 4( .0016)(24)
2( .0016)
238.02, 63.02
b b ac
q
a

=

=

Thesevaluesarefoundonagraphingcalculatorwithcarefuluseofparentheses.

Onlythevalueat correspondstoourgraph.Tofindtheequilibriumprice,wemustsubstitute
theequilibriumquantityintothesupplyfunctionorthedemandfunction:
63.02 q

( ) ( )
2
(63.02) .0016 63.02 .08 63.02 24
12.60
(63.02) .2(63.02)
12.60
D
S
+

Sincethepointofintersectionisthepointthatiscommontobothfunctions,wegetthesamevalue
frombothfunctions.
HowToFindtheEquilibriumPointGraphically
Earlierweestimatedthepointofintersectionfromagraph.Youcanalsouseagraphingcalculatorto
finetunethatestimate.Tostart,graphbothfunctionsinanappropriatewindow.Thenwellusethe
CALCmenutofindthepointofintersection.
1. Enterthesupplyanddemandfunctionsintotheequationeditor
bypressingtheobutton.Youllneedtousethe
buttontotypexinplaceofq.
2. Pressptoadjustthegraphingwindowtothevalues
showntotheright.
3. Toseethegraph,presss.Sincethepointofintersectionis
visible,wecanmoveontothenextstep.Ifthepointof
intersectionisnotvisible,readjustthewindowbypressing
p.
4. Tofindthepointofintersection,pressyrtoaccessthe
CALCmenu.Usetomoveyourcursorto5:intersectand
press.
5. Tofindthepointofintersection,youneedtohelpthecalculator
byindicatingthefirstcurveandthesecondcurve.Dothisby
movingthecrosshairstotheappropriatecurvewith}or
andpressingtoselectthecurve.
6. Nowmovethecrosshairswiththe|or~buttonsnearthe
pointofintersectiontosupplythecalculatorwithastarting
guess.
7. Presstofindthepointofintersection.
8. Theapproximatepointofintersectionisdisplayedonthe
screen.Rememberthatthisisanestimate.Noticethatthis
equilibriumisconsistentwiththevaluewefoundalgebraically.