Introduction to Supply and Demand

Introduction

Economists use linear modeling when they analyze the supply and demand of a product.

Everyone is affected in his or her decision to buy or not to buy something by its price.
You are more likely to buy something if it is cheap rather than expensive.
Economists say that the quantity demanded for a commodity depends upon its price.
As its price becomes higher, the quantity demanded amongst customers for it gets less.

But manufacturers want to make as much profit as possible.
If they can sell many commodities at a high price they will make a big profit.
Economists say that the quantity supplied of a commodity also depends upon the price.
As the price becomes higher, the quantity supplied by manufacturers to the market gets bigger.

Economists often use linear models for both supply and demand.

The demand or demand function is governed by the formula: Q_d = a_dp + b_d
where

Q_d = quantity demanded
a_d = slope of the demand function, shows the decrease of quantity demanded if the price changes by one unit
p = unit price
b_d = intercept of the demand function

The supply or supply schedule or supply function is given by the formula: Q_d = a_dp + b_d
where

Q_s = quantity supplied
a_d = slope of the supply function, shows the decrease of quantity supplied if the price increases by one unit
p = unit price
b_s = intercept of the supply function

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