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Market-Demand Analysis

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Market-Demand Analysis

By | August 2011
Page 1 of 2
MARKET ANALYSIS

I.Review:

A.Factors affecting Demand and Supply

DEMANDSUPPLY
PricePrice
Prices of related productsInput prices
Consumer incomesTechnology
Consumer tastes and preferencesExpectations
Consumer ExpectationsNumber of sellers
Other FactorsOther Factors

B.Demand/Supply Functions vs. Demand/Supply Curve

Mathematics: Expressing Q in terms of P (P,Q)
Economics: Expessing P in terms of Q (Q, P)

Q = a – bP
Q = -c + dP

II.EQUILIBRIUM ANALYSIS

A.Equilibrium Condition: D = S
B.Graphical Presentation

C.Numerical Example:

The market demand and supply of a product are linear functions. The demand function is such that consumers will not buy anything at a price of P18/unit and for each P1 price drop the quantity purchased increases by one (1) unit. On the other hand, sellers will not sell anything at P4/unit and for each P1 price rise they are willing to sell two (2) additional units

a.Find the equation of the functions following the orders (P,Q) and (Q,P) b.Determine and .
c. Graph the functions

III.Illustration: Tax Incidence/Imposition

A.Assumptions:
1. Supplier is taxed t/unit sold
2. Immediate impact is on the suppliers; no change in demand because tax is not levied on the buyers 3. Tax on sellers makes it less profitable to do business 4. Imposing a tax brings a new supply curve

B. Graphical Representation
C. Mathematical Statements:
a.Before tax imposition:
b.After tax imposition:
c. Amount absorbed by the consumer per per unit:

d. Amount absorbed by the seller/unit:
e. Total tax paid by the consumer:
f. Total tax paid by the sellers:
g. Total tax revenue of the government:

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