Simple demand and supply function interpretation question

CFA Level I Economics
#1

Hi all,

Have a quick question…

A demand function: Qd = 8.4 -0.4(Px) + 0.06(I) - 0.01(Py)

Where px is the price of good x, I is income and Py is the price of other goods.

How should 8.4 be interpreted and what does it represent?

Am I correct in saying its the intercept parameter, i.e. the amount demanded regardless of price, income and price of other goods?

if so, a supply function as this: Qx = -175 + 250px - 5w

where px is the price of the good being supplied and w is the wage rate.

-175 is interpreted as what exactly?

surely not what is supplied regardless of the price and wage rate. How can you produce a negative quantity?

My assumptions are probably completely wrong… would gladly appreciate a helping hand!

Many Thanks

#2

Howdy!

It’s the quantity demanded if Px = 0, I = 0, and Py = 0.

Of course, it’s not reasonable for any of those numbers to be zero (well . . . income, maybe . . . for a pauper . . . but not the prices), so there’s no real-world interpretation that makes sense (in isolation).

Yes, it’s the intercept, but it’s not the amount demanded _ regardless _ of price, income, and the price of other goods; it’s the amount demanded if the price, income, and price of other goods _ are all zero _, which isn’t a real-world possibility.

The quantity supplied if the price and wage rate are both zero: again, a useless interpretation.

My pleasure.

#3

Thanks S2000! You’ve worked your magic again!

#4

You’re welcome.

You flatter me.