FUNCTIONS In general, a function is a relation between two sets such that to each element of the domain (input) there

corresponds exactly one element of the range (output). When a function is defined by an equation, the variable that represents the numbers in the domain is called the independent variable of the function, and the variable that represents the numbers in the range is called the dependent variable. When we say the equation y = 0.8 x + 6 defines y as a function of x, we are saying that the equation defines a function with independent variable x and dependent variable y. (reference blah blah blah) Function is synonymous to the slope-intercept form of Linear Equation in two variables. f ( x) = 0.8 x + 6 can also be written as y = 0.8 x + 6 . Therefore, 0.8 is the slope (m) while 6 is the intercept (b). The slope determines if the value of f(x) is directly or indirectly proportional with x. If the slope is negative (sloping downward), the relationship between them is indirectly proportional (as x increases, f(x) decreases). While if the slope is positive, (sloping upward), the relationship is directly proportional (as x increases, f(x) increases). In business and economics world, graphing a function is different. Instead of putting the value of x (independent variable) on the horizontal axis and the value of y or f(x) (dependent variable) on the vertical axis, it is done differently. It is much prepared that the value of x (independent variable) is on the vertical axis and the value of y or f(x) (dependent variable) is on the horizontal axis. This type of graphing is used throughout this research.

CONSUMPTION FUNCTION Consumption is the act of consuming or the act of using goods. In economics, consumption is a function of income (C=f(x); wherein c is consumption and x is income). Consumption function is one of the basic ingredients in a larger discussion of how an economy can have persistent high unemployment or persistent high inflation. This study is often called Keynesian analysis (named after its founder John Meynard Keynes, a wellknown economist) An example of a consumption function is, C = f ( x) = 0.8 x + 6 , where x is the income in billion pesos and C is the consumption in billion pesos. This shows that consumption is a function and shows what a functional relationship is. In National Consumption, the value of b will always be greater than zero, for there is always some amount of consumption necessary to maintain life, even though disposable income (money) is zero. Mathematically, we say b > 0 . Consumption will increase whenever income increases, but at a slower rate. Thus, the slope of the line representing the consumption function is greater than 0 but less than 1; that is, 0 < m < 1. (reference blah blah blah) The slope m is called the marginal propensity to consume, because it indicates the proportion of our income increases that we are willing to spend. The value of C for a given value of x is called the aggregate consumption. (Reference blah blah blah) The consumption function f ( x ) = 0.8 x + 6 has direct relationship because its slope is positive (as income increases, consumption increases). By constructing a table and graph, we can easily determine the relationship between income and consumption.

120 100 (in billion pesos) f(x)= 80

0 6

25 26

50 46

75 66

100 86

(in billion pesos)

40 20

60

Example: 0 1. If the consumption function is given by C = f ( x) = 0.65 x + 4 , where C is the consumption and y is the disposable income (in billions of pesos). (a) What is the consumption when disposable income is 0? (b) What is the consumption when disposable income is P18 Billion? 2. Suppose that the national consumption is P8 billion when national disposable income is zero, and that at each level of income above zero, consumption is 0.6 of disposable income. (a) Write this consumption function as an equation (b) What is the marginal propensity to consume? Solution: 1. (a) f(0)=0.65(0)+4=4 *the consumption is P4 billion (b) f(18)=0.65(18)+4=15.7 *the consumption is P15.7 billion 2. (a) b=8; m=0.6 then the consumption function is C=f(x)=0.6x+8 (b) m is the marginal propensity to consume, thus, it is equal to 0.6.
6 26 46 66 86

SUPPLY AND DEMAND FUNCTION

Demand is an economic principle that describes a consumers desire and willingness to pay a price for a specific good or service. The law of demand states that the quantity demanded will increase as price decreases. It shows that quantity demanded (D) is a function of price (p), D=f(p). An example of demand function is, D = f ( p ) = 2 p + 80 , wherein, D is quantity demanded and p is price. This equation tells us that the level of demand is dependent on the price charged. The slope of the demand function is always negative since that quantity demanded is indirectly proportional with price. The slope (2) tells us the rate of change of demand when price changes. Demand schedule is the table that relates price to quantity demanded. Price (p) Quantity Demanded (D) O 5 10 15 20 25 30 35 40 80 70 60 50 40 30 20 10 0

Demand curve is the graphical representation of the relationship between price and the amount of a product people want to buy.
40 35 30 price (p) 25 20 15 10 5 0 0 10 20 30 40 50 60 70 80

Since negative price and quantity has no meaning, the graph of demand function is restricted on the first quadrant. The domain of the function is 0 p 40 , while the range is 0 D 80 . It means that at the price of zero,
quantity (D)

all

consumers are willing to buy the product, while

at the price of 40 and above, no one is willing to buy the product. On the other hand, supply describes the producers availability and willingness to deliver goods or render service for a certain price. The law of supply states that the

quantity supplied increases as price increases. It shows that the quantity supplied (S) is a function of price (p), S=f(p). An example of supply function is, S = f ( p ) = 4 p 40 , wherein, S is quantity supplied while p is price. This equation tells us that the level of supply is dependent on the price charged. The slope of the supply function is always positive since that quantity supplied is directly proportional with price. The slope (4) tells us the rate of change of supply when price changes. Supply schedule is the table that relates price to quantity supplied. Price (p) Quantity Supplied (D) 10 0 15 20 20 40 25 60 30 80 35 40 45 50 100 120 140 160

Supply curve is the graphical representation of the relationship between price and the amount of product producers want to produce.
50 45 40 35 30 25 20 15 10 5 0 0 20 40 60 80 100 120 140 160

Since negative price and quantity has no meaning, the graph of supply function is restricted on the first quadrant. The domain of the function is 10 p , while the range is 0 S . It means that if the price is 10 and

price (p)

below, the producers are not willing to produce the product, while if the price increases until infinity, the number of producer that are willing to produce the product approaches infinity too. MARKET EQUILIBRIUM Based on the law of supply and demand, producers are more willing to produce a product if its price is high, but the consumers are not willing to buy a product if its price is

quantity (S)

how. On the other hand, if price is low, consumers are more willing to buy the product but producers are not willing to produce the product. In order to solve this problem between two opposing forces, an agreement is made in something called market. (this area is called market analysis) When the quantity demanded is equal to the amount supplied at a certain price, market equilibrium occurs. If the demand curve and supply curve are plot on the same plane with the same unit, the two curves will intersect each other at a certain point, this point of intersection is called the equilibrium point. Equilibrium point is a binary set containing equilibrium price and equilibrium quantity respectively. Equilibrium price is the price at the equilibrium point while equilibrium quantity is the quantity at that point. Consider this supply and demand function: S = f ( p ) = 4 p 40 D = f ( p ) = 2 p + 80 find the equilibrium point, equilibrium price and equilibrium quantity. There are two way to determine the equilibrium point, equilibrium price and equilibrium quantity. Its either by graphing the functions in one Cartesian plane or by letting S=D. Solution 1: Graph the demand function and supply function in one Cartesian plane. The value of p (price) on the vertical axis, while the quantity on the horizontal axis.

Equilibrium price Equilibrium point (20, 60)

Equilibrium Quantity

Solution 2: Market equilibrium occurs when quantity demanded is equal to amount supplied at a certain price. Therefore, S=D in market equilibrium. 4p-40=-2p+80 6p=120 p=20 In order to get the equilibrium quantity, substitute the value of p, which is 25, in either supply function or demand function. Using the supply function: f(20)=4(20)-40 f(20)=80-40 f(20)=40 *equilibrium quantity is 40. Using the demand function: f(20)=-2(20)+80 f(20)=-40+80 f(20)=40 *equilibrium price is P20.

The Impact of Taxes on Equilibrium Government imposes tax on goods and services so that the country will benefit on it. These taxes are used in different government projects such as road concreting, public seminars, construction of public classrooms and many more. This tax affects the supply function and if supply function changes, the market equilibrium varies. Example: The government imposes a 3 pesos tax per item on the supplier. How does this increase affect the equilibrium price p if the supply function and demand function is given by S = f ( p ) = 4 p 40 and D = f ( p ) = 2 p + 80 respectively. Solution: The consumers pay p pesos per item. 3 pesos of it goes to the government and p-3 pesos goes to the supplier. The price received (PR) by the supplier is equal to the original price (OP) deducted the amount of tax (AT), PR=R(p)=OP-AT since OP is equal to p and AT is equal to 0.12p, PR=R(p)=p-3 by getting the composition of the supply function with the received price function, we can determine the new supply function (S or f(p)), S=(f o R)(p)=f(R(p) S=4(p-3)-40 S=4p-52 However, the demand function is the same. To determine the new equilibrium price, let S=D

4p-52=-2p+80 6p=132 p=22 The previous equilibrium is P20. After the tax is imposed, the new price is P22. Therefore, there is an increase of P2 in the equilibrium price. It means that 2 pesos of the tax is paid by the consumer while the remaining 1 peso is paid by the suppliers. *the new equilibrium price is P21.74