Tuesday, May 20, 2014

Want to make your own ITM S&D diagrams?

I put this diagram in the previous post:


Generic supply and demand diagrams are easy to make in the information transfer model. A generic demand curve is exp(1 - x) and a generic supply curve is exp(x - 1). These equations follow from equations (8a,b) and (9a,b) at this post. These intersect at the equilibrium price p = 1 and quantity supplied/demanded Q = 1, and the units of the x-axis are fractional change. For example, moving from Y = 1 to Y = 1.1 is a 10% increase.

Adding in shifts is basically shifting the argument. A shift Δx (either positive or negative) in the demand curve is exp(1 - (x - Δx)) and it's exp((x - Δx) - 1) for the supply curve.

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.