Suppose the general demand function for cars is Q_d = f(P, M, P_gas, P_e, N) suc

Question

Suppose the general demand function for cars is Q_d = f(P, M, P_gas, P_e, N) such that M= average income of $30, 000; P_gas = $2.75 per gallon of gas; P_e = $20, 000 expected future price; and N = 700 consumers in the market. Suppose the general supply function is Q_s = f(P, P_1, P_r, T, P_e, F) such that P_1 of average wages is $15.15, P_r = $35, 000 the average cost of SUVs, T = 100 the average level of technology, and F = 21 is the average number of firms in the industry. Explain the meaning of the general demand function, the general supply function, and the next steps in solving this problem. b. The direct demand function is Q_4 = 40000 - 3P and the direct supply function is Q_s = -25000 + 2P; solve the equation. Interpret the results.

Explanation / Answer

Direct demand function as you can see from the image provided, that it depends on the Avaerage income, Price of gas per gallon, Expected future price and No. of consumers in the market. These all factors are the one which are directly related to the product itself. A normal demand function is a function showing all the factors(relating to product as well as others) which affect the quantity demanded of a product. Thus a direct demand function is the one which shows all the factors which affect the quantity demanded of a product but inherently related to product only.

Same you you can see for the Direct supply function and you can actually see that all such factors are also directly concerned to the supply of the product.

Solving the equations Demand = Supply

Thus 40000 - 3P = -25000 + 2P

5P = 65000 thus P = 13000

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