Tuesday 25 April 2017

I need help to figure out how to do a demand and supply curve for my economics project. We are doing a project in which we had to ask people what...

If you already have the demand schedule, most of the work is done. I don't have your precise figures in front of me, so I'll just make up my own; the process is the same.

Suppose you interviewed 40 people, and asked them all the maximum amount they'd be willing to pay for a pizza.

5 said they would pay no more than $20.
10 said they would pay no more than $15.
15 said they would pay no more than $10.
5 said they would pay no more than $5.
5 said they hate pizza and would never pay for it.

Let's think about the supply and demand graph, with price on the y-axis and quantity on the x-axis. If we set a price of $20, how many people would buy? That's easy: 5 people. So graph the point (5,$20).

Now, what about a price of $15? There are 10 people who said they'd pay exactly that much, but we also need to add in the 5 people who said they'd pay more than that. Someone who will buy a pizza for $20 will also buy it for $15 (presumably; I don't think pizzas are a Giffen good or a Veblen good). So the total number of people who would buy a pizza for $15 is actually 15 people. So graph the point (15,$15).

Continuing on, in my little example there are a total of 30 people who would buy at $10, so (30,$10), a total of 35 people who would buy at $5, so (40,$5). Then when you include the people who would not pay anything, you can add the point (40,$0) as the number of people who would pay "at least $0" for a pizza.

Since nobody said they'd pay more than $20, you should also draw a horizontal line from (0,$20) to (5,$20). If you try to charge more than $20, you will sell no pizza at all.

Graph all those points, then draw lines connecting them. Maybe you could try to make a smooth curve to estimate the values in between; or maybe you should just make straight lines for simplicity. In any case, that's your demand curve.

If you have multiple different types of pizza (e.g. pepperoni vs. cheese), each type should get its own demand curve. In reality they are probably imperfect substitutes, so if the price of one falls demand for the other will shift down; but there's no simple way of representing that on the demand curves.

Now all you have to do is do that same process for your actual data.

No comments:

Post a Comment

Is there any personification in "The Tell-Tale Heart"?

Personification is a literary device in which the author attributes human characteristics and features to inanimate objects, ideas, or anima...