I am trying to calculate the inverse supply and demand functions. Supply function- Qx= 175 + 250Px - 5w Demand function- Qx = 8.4 - 0.4Px - 0.06I - 0.01Py Can someone show me what the inverse functions of the above two are and explain how they got it? Thanks!
For the inverse don’t you just re-arrange for P.
Yes but the answers that I have doesnt make sense.
It’s just basic algebra:
Supply function:
Qx = 175 + 250Px – 5w
Qx – 175 + 5w = 250Px
Px = (Qx – 175 +5w)/250
Demand function:
Qx = 8.4 – 0.4Px – 0.06I – 0.01Py
Qx – 8.4 + 0.06I + 0.01Py = -0.4Px
Px = (8.4 – Qx – 0.06I – 0.01Py)/0.4
How come the answer is: For supply: Px= 1 + 0.0004Qx For demand: Px= 28 - 2.5Qx
Probably because:
- You were given specific values for w and I and Py, which you concealed from us, and
- You mistyped either the 250 in the (original) supply function or the 0.0004 in the answer for the supply function.
I must apologize, you are right I must be missibg something I am just going over my old notes and all I have is the answer (so I am not intentionally keeping data from you). I guess I am getting bogged down by the simplicity, trying to make it more difficult then it appears to be. Appreciate your help! Thanks.
My pleasure.
On the second point, the 0.0004 is supposed to be 1/250; so either it’s really 0.004, or it’s 1/2,500. I’d put my money on the former.
I do not have an undergraduate in finance. I too am having trouble understanding how they are getting the inverse of the demand quantity.
in the Schweser notes the Demand Quantity for gas is :QDgas= 138500-12500Pgas
What does the calculation for the inversion look like?
Thanks