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V.I.G.Menon 1
Chief Consultant, Yahovan Centre for Excellence,12/403,W Block, Anna
Matrix form ,as well as using the mean of the parameters Price,Wage ,Supply
and Demand Quantities for a community as a market. The paper thus explores
the conditions under which the standard demand/supply relations hold with
demand based on the basic equations show that for goods with –ve price
the micro economic thought everywhere. In the following we discuss why this “Natural
Law” holds.
Price-Demand Dependency
We assume a buyer with a fixed wage Wb for any given period of the wage cycle,
buying Qi amounts of a good at price Pi. Figue 1 Gives the Matrix where the rows 1
to B are the buyers and Columns 1 to S are the sellers .If all the wage/income of this
buyer for this period is spent on N goods and services, we can write
If we assume that as long as Wb , is constant for the individual “b”, then we get
income Wb spent on item “i”.This equation tells us that if individuals spend generally
fixed ratios of their wages on various goods, then demand Qi depends inversely with
price.
Price-Supply Dependency
Similarly, now consider a supplier who is supplying “M” number of goods to the
market, including the goods that are bought by the buyer above. His total wage or
Ws = ∑ PJ QJ …………………………………………… (4)
Where , QJ is the total quantity of “J” sold in the market by him at price PJ , K J
.Since PiQi represents the total paid by the buyer for the Quantity Qi of “ith” product
For the same item where buyer’s item i = J th item for the seller ,we write
(PiQi / PJQJ ) = K iWb/K JWs ,,we can also note K iWb/K JWs = C ,where C is the
fraction of the income generated due to product J for the supplier “s” by the buyer b”.
QJ = C* Pi …………………………………………………… (7)
profiles for the product i=J (not necessarily Pi =Pj the equillibrium price)
As the terms involving buyer or supplier are not entering here, these equations are
For any buyer “b” and similarly for any supplier “s”, we can rewrite the above
Let us,for clarity,choose to write P.Q for buyer “b” as P b.Q b and for supplier
Summing for all buyers “b” from b = 1 to B and for all suppliers “s” from s = 1 to
P B*Q B, and P S*Q S represent Matrices whose elements P ij.Q kl are as shown in
the figures 2 & 3 above. K B*W B and K S*W S are single column matrices
(13)
(14)
KB WB = P BQ B …………………………………………… (13)
KS WS = P SQ S …………………………………………… (14)
Both these look exactly like our single buyer case except that these are Matrix
Equations.
Assuming as in the previous case that Consumption Profiles will be same when the
(P -1 B )* KS WS = QB ……………………………………………
(15)
Which tells us that the demand matrix Q B is inversely dependent on the price
matrix P B.
we have
(KB WB ) -1 * KS WS =( P B Q B ) -1
* P S Q S …………………………………
(16)
ie.,
C =( P B Q B ) -1 * P S Q S …………………………………
(17)
(18)
The Matrix relations will enable us to study the system using linear equations and linear
programming
constant and the mean fraction of the wage spent on the ith
QJ = C* Pi ………………………………… (19)
that is, the Mean Quantity QJ of item “J “ supplied is proportional to the Mean
Purchase Price Pi for the same commodity (where generally, ith commodity bought by
buyer is same as the Jth commodity supplied- pl note that for enumeration, the i th
product bought by the buyer need not be the same as the ith product supplied by the
supplier)
Relation between the individual,(or mean), wage, price and demand is seen by plotting
Ref
P = K.W/Q,with K =1,and Q on the X,W on the Y and P on the Z axes, using the
online 3D plotter .
The results are very encouraging .Apart from showing the expected price-demand
dependence,on its red edge,the green edge of the 3D “sheet” shows that as wage level
ymin=1&xmin=0&zmin=0&ymax=5&xmax=5&zmax=15&f=y*x^-1
( dlnQ/dlnP) + 1 = (dlnW/dlP)
α + 1/β = 1
( dlnW/dlnQ) = 1 - [1/(dlnQ/dlnP)] ……………………………… (23)
ie,
between price elasticity of demand and income elasticity of demand are explored in
the graph ref,showing that for goods with –ve price elasticities of demand ,income
elasticities of demand is positive, such that as wage increases, the demand increases for
Under the assumptions of constant income for the buyer and the supplier, as well as
constant consumption and supply profiles for the buyer and the supplier respectively,
it is found that the Classical price-demand as well as the price-supply relations hold
expressed in Matrix form as well as through Mean of Price, Quantity Wage and the
associated Constants.
Graphical analysis of the equations in 2D shows the expected pattern, and the 3D
graph involving, wage, price and demand equation shows that the Quantity demanded
increases with wage. Analysis of price elasticities show that for goods with –ve price
all “J” ,gives his total budget to spend which may be a fraction Ki of his wage Wi,as given by KiWi.
Along the column, Pi remains same,but QJ varies for all buyers for the same product at the same
price Pi .The Row total Gives the income or revenue for each product to Supplier, where CJWJ is
income of Supplier from all buyers for product J sold in this market =∑PiQJ for any J for all “i” .
S
Q1b Represents the Quantity of “item” “1” bought by any buyer “b” from
supplier “S”.
b
PS1 *SQ1b This product of bP1 with SQ1b represents the total amount
transacted by any buyer “b” for “item” “1” supplied by any supplier “S”
at price bP1 for quantity SQ1b
b
PSn *SQnb This product of bP1 with SQ1b represents the total amount
transacted by any buyer “b” for “item” “n” supplied by any supplier “S”
at price bPn for quantity SQnb
b
K represents the fraction of the budget allocation by “b”
bWS represents the fraction of the revenue of any supplier S due to any buyer “b”
b
KS represents the fraction of the budget allocation by “b” for supplier “S”.
b
KSn represents the fraction of the budget allocation by “b” for supplier “S”
∑ bKSn * bWS = bKS * bWS gives total budget allocation of “any” buyer “b” for all
n=1 to N
products 1 to N offered by “any” supplier “S”.
∑ bKS * bWS = KS * WS gives total budget allocation of all buyers “1 to B” for all
b=1 to B
products 1 to N offered by “any” supplier “S”.
∑ bKS * bWS = bK * bW gives total income of all suppliers “1 to S ” for all products
S=1 to S
1 to N bought by any buyer “b” .
Quantity
Fig 2:Sample Price-Deamand graph calculated from Equation (3) using online graph
Quantity , K=5,W = 1000, and X (that is ,Price) set to change from 100 to 500 units
Su
ppl
y
Price
Fig3.Sample Price-supply graph calculated from Equation (7) using online graph plotter (http://graph-
plotter.cours-de-math.eu/) setting X axis for Price and Y-axis for Quantity , K=5,W = 1000, and X (that is
plotted based on equation (3) shows that as wage level increases ,price level also
ymin=1&xmin=0&zmin=0&ymax=5&xmax=5&zmax=15&f=y*x^-1
α
plotter at (http://graph-plotter.cours-de-math.eu/)