The post Difference between Individual and Market Demand appeared first on Quickonomics.

]]>Individual demand describes the ability and willingness of a single individual to buy a specific good or service. As indicated above, this largely depends on the price of the product as well as individual preferences. In most cases (i.e. for normal goods) demand increases as the price of a good or service decreases. This relationship between price and quantity can be illustrated using a demand curve (*for more information see: the law of supply and demand*).

To give an example, let’s look at the two diagrams below. They illustrate the demand curves for ice cream of two individuals – Tom and Jerry. Tom’s demand curve (D_{T}) shows us how much ice cream he is willing and able to buy at different prices, whereas Jerry’s curve (D_{J}) represents his individual willingness and ability to buy ice cream.

Notice that the two curves have different slopes. While Tom is willing to buy ice cream up to a price of USD 4.00, Jerry will only pay a maximum of USD 3.00. However, if ice cream was free (i.e. price = USD 0.00), Jerry would eat 3 cones, while Tom would only eat 2. This is a beautiful example of the difference between *willingness* and *ability* to buy. More specifically, even though Tom’s demand curve clearly shows that he’ll pay more for an ice cream cone, that does not necessarily mean he likes ice cream more than Jerry. Maybe he simply has more money to spend, so he doesn’t really care how much his ice cream costs. However, to analyze this further, we’d have to consider their individual indifference curves and budget constraints as well.

Market demand describes the quantity of a particular good or service that all consumers in a market are willing and able to buy. In other words, it represents the sum of all individual demands for a particular good or service. Again, this is a lot easier to understand if we look at the corresponding demand curve.

If we revisit our example from above, we have two individual demand curves. The first one represents Tom’s individual demand while the second one describes Jerry’s demand. Hence, to calculate market demand for ice cream in this example, all we have to do is *horizontally* sum the two individual demand curves. This results in the following market demand curve (D_{M}) :

Note that the curve has sharp bend at a price of USD 3.00. The reason for this is that Jerry won’t buy any more ice cream above this price, so the market demand curve above USD 3.00 is in fact equal to Tom’s individual demand curve. For all prices below USD 3.00 market demand is equal to Tom’s individual demand plus Jerry’s individual demand (see above). For example, at a price of USD 2.00, market demand is 2 ice cream cones (1 for Tom and 1 for Jerry). Meanwhile at a price of USD 0.00, market demand adds up to 5 cones (2 for Tom and 3 for Jerry).

Demand is defined as the quantity of a specific good or service that consumers are willing and able to buy over a given period of time. However, it is important to distinguish between two different types of demand: individual demand and market demand. Individual demand describes the ability and willingness of a single individual to buy a specific good or service. Meanwhile, market demand is defined as the quantity of a particular good or service that all consumers in a market are willing and able to buy (i.e. the sum of all individual demands for a particular good or service).

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]]>The post How to Calculate Economic Profit appeared first on Quickonomics.

]]>First, we need to calculate total revenue. That is, we need to know how much money a company (or any other economic actor) has made from selling their goods or services. Note that at this point we don not worry about costs yet. All we want to know is how much money consumers have paid for the firm’s products in total. Fortunately, this is quite easy to find out. All we need to do to calculate total revenue is multiply the number of products (i.e. units) sold by their individual prices. To calculate total revenue across multiple products, we can do the exact same thing and then simply add the individual revenues up at the end to get total revenue. So in other words, to calculate total revenue, we use the following formula:

**Total revenue = Number of units sold x price per unit**

For example, let’s look at an imaginary ice cream company called *Ice Dream*. This company only sells one product, ice cream cones. Last year *Ice Dream* has sold over 5,000,000 cones at a price of USD 0.5 each. That means, according to the formula above, the company’s total revenue adds up to USD 2,500,000 (5,000,000 x 0.5).

Next, we need to compute the costs. This includes both explicit and implicit costs. Explicit costs are all costs that are connected to actual direct payments, such as the cost of raw material, rent, wages, etc. As a rule of thumb, all costs that show up in the reports and accounts are explicit costs. There are several different types of explicit costs, for more information on that, you can read our article on the types of costs of production.

Meanwhile, implicit costs refer to all costs where no payments are made. Now, this may seem odd if you are not familiar with the concept of opportunity costs. In that case, make sure to check out our list of 12 things you should know about economics before you continue. Essentially, implicit costs are the opportunity costs of what has to be given up in order to use factors of production in a certain way. More specifically, the value of the next best alternative is considered an implicit cost.

Thus, to calculate total cost we simply can use the following formula:

*Total Cost = Explicit cost + implicit cost*

To illustrate this, let’s revisit our example from above. Assume that *Ice Dream* had to pay a total of USD 400,000 for ingredients and other material as well as USD 500,000 in wages and a rent of USD 100,000 last year. Thus, the explicit costs add up to USD 1,000,000 (400,000 + 500,000 + 100,000). This is what you’ll see in the company’s accounts. If* Ice Dream* had decided to allocate part of its resources to producing candy bars as well, it could have made an accounting profit of USD 1,000,000. This is the next best alternative the company could have come up with. So to calculate total cost we need to include those costs as well, which results in total costs of USD 2,000,000 (1,000,000 + 1,000,000).

Finally, we can subtract the total cost we calculated above (i.e. explicit cost + implicit cost) from total revenue to find economic profit. At this point it is important to note that economic profit is usually considerably lower than accounting profit (because it includes more costs). This becomes even more apparent as we look at the following formula:

*Economic profit = Total revenue – (explicit costs + implicit costs)*

With this formula we are able to calculate the economic profit of our imaginary *Ice Dream* company. If we plug in the numbers we calculated above, economic profit adds up to USD 500,000 (2,500,000 – [1,000,000 + 1,000,000]) . Meanwhile, accounting profit adds up to as much as USD 1,500,000 (2,500,000 – 1,000,000). This makes sense, because the foregone profit of USD 1,000,000 does not show up in the company’s accounts. However, it is still relevant in the decision-making process.

Economic profit is defined as the difference between total revenue and total cost, including both explicit and implicit cost. The concept of economic profit is extremely important when it comes to analyzing decision-making processes in an economic context. To calculate it, we can follow a simple three-step process: (1) calculate total revenue, (2) calculate total costs, and (3) subtract total costs from total revenue.

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]]>The post The Three Types of Trade Barriers appeared first on Quickonomics.

]]>Tariffs are taxes that are imposed by the government on imported goods or services. They are sometimes also referred to as *duties*. Tariffs can be implemented to raise the cost of products to consumers in order to make them as expensive or more expensive than local goods or services (*i.e. scientific tariffs*). In many cases, tariffs are used to protect local industries that could otherwise not compete with foreign producers (*i.e. peril point tariffs*). Of course, the countries affected by those tariffs usually don’t like being economically disadvantaged, which often leads them to impose their own tariffs to punish the other country (*i.e. retaliatory tariffs*).

For example, let’s assume there are only two countries in the world that produce candy bars. The United States and Japan. In the US, local candy bars currently sell at a price of USD 2.50. Meanwhile candy bars from Japan only cost USD 2.00. Hence, people in the US buy more Japanese candy and local producers struggle. In response to this, the US government decides to restrict imports of candy bars to promote local candy production. To do this, they impose a tariff of USD 1.00 on every candy bar imported in the US. Because of this tariff, the price of Japanese candy bars increases to USD 3.00, while US products still sell at USD 2.50. This makes local candy relatively cheaper and more attractive for consumers.

Non-tariffs are barriers that restrict trade through measures other than the direct imposition of tariffs. This may include measures such as *quality and content requirements* for imported goods or *subsidies* to local producers. By establishing quality and content requirements the government can restrict imports, because only products can be imported that meet certain criteria. More often than not, these criteria are set to benefit local producers. In addition to that, the government can grant subsidies, i.e. direct financial assistance to local producers in order to keep the price of their goods and services competitive.

Let’s revisit our example from above. Apart from imposing a tariff on imported candy, the US government could restrict trade by passing a law that requires all candy bars sold within the US to contain at least 50% locally produced sugar. This prevents many Japanese producers from selling their candy in the US and those who decide to comply with the new regulations will face higher costs of production. As a result, the price of Japanese candy increases and US producers become more competitive. Alternatively, the US government could directly support local companies by paying them USD 0.50 for each candy bar they produce. This allows local producers to sell their candy bars at USD 2.00 instead of USD 2.50 and match the price of Japanese candy.

Quotas are restrictions that limit the quantity or monetary value of specific goods or services that can be imported over a certain period of time. The idea behind this is to reduce the quantity of competitive products in local markets which increases demand for local goods and services. This is usually done by handing out government issued *licenses* that allow companies or consumers to import a certain quantity of a good or service. Although technically speaking, quotas are non-tariff measures, they take quite a different approach than the other measures discussed above. Instead of just making it more difficult or costly to import goods, quotas actually limit the amount of products that can be traded. There is no way for foreign producers to circumvent such a quota. The most restrictive type of quota is an *embargo*, i.e. an entire ban of trade and/or commercial activity concerning a specified good or service.

For example, the US government could decide to limit the amount of candy bars that can be imported from Japan to 100,000 every year. Once those bars are sold, there are only US products available for the rest of the period, even though they may be more expensive than their Japanese counterparts. A more extreme version of this would be for the US government to ban all imports and exports of candy bars, which eliminates foreign competition altogether.

Trade barriers are restrictions on international trade imposed by the government. They either impose additional costs or limits on imports and/or exports in order to protect local industries. There are three types of trade barriers: Tariffs, Non-Tariffs, and Quotas. Tariffs are taxes that are imposed by the government on imported goods or services. Meanwhile, non-tariffs are barriers that restrict trade through measures other than the direct imposition of tariffs. And last but not least, quotas are restrictions that limit the quantity or monetary value of specific goods or services that can be imported over a certain period of time.

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]]>The post How to Calculate Marginal Revenue appeared first on Quickonomics.

]]>First of all, we have to compute the change in revenue. Usually, when the level of output increases or decreases, revenue rises or falls accordingly. That means, as a rule of thumb more output results in higher revenue, whereas less output results in lower revenue. Calculating the change in revenue is easy. All we need to do is take the revenue after a given change in output (i.e. new revenue) and subtract that from the revenue before the change (i.e. old revenue). This leaves us with the following formula:

*Change in revenue **= New revenue – old revenue*

Let’s look at an example. Say you own an ice cream shop; *Ice Cream Wonderland*. Yesterday, you sold a total of 200 ice cream cones at a price of USD 2.00 each. That means, your total revenue was USD 400 (200*2.00). Today you manage to sell 220 cones at the same price. As a result, your total revenue increases to USD 440 (220*2.00). Hence, the change in revenue from yesterday to today amounts to USD 40 (440 – 400).

Next, we need to compute the change in quantity. In most cases, we assume that an increase in the level of output results in an equally large rise in the quantity sold. In that case, the change in quantity is identical to the change in output. Only in some cases the two numbers don’t match. Specifically, when the increase in output surpasses demand, it will not be possible to sell all additional units. Instead, some of them won’t be sold but stored in an inventory. This results in an increase in revenue that is smaller than the increase in output. However, as mentioned above, in most cases you can assume that all additional output can be sold. To calculate the actual change in quantity, we take the quantity after the change in output (i.e. new quantity) and subtract it from the quantity before the change (i.e. old quantity). This leaves us with the following formula:

*Change in Quantity = New quantity – old quantity*

Let’s revisit our example. The quantity of ice cream produced (and sold) increased from 200 cones yesterday to 220 cones today. Thus, it has increased by 20 ice cream cones (220 – 200). Please note, even though marginal revenue is defined as the additional revenue gained by producing (and selling) *one* more unit of a good or service, we can still calculate it for any given number of additional units.

Now we can finally calculate marginal revenue by dividing the change in revenue by the change in quantity. If you look at the definition of marginal revenue from above – *the revenue gained by producing one more unit of output –*you can easily see why we divide the change in revenue by the change in quantity; we want to calculate the increase in revenue *per* additional unit. At this point it is important to point out that marginal revenue can change across different levels of output. That is, if quantity changes from 1 to 2 units, it may differ significantly from the marginal revenue of producing 101 instead of 100 units. But don’t worry, we can always use the following formula to calculate it:

**Marginal revenue = change in revenue / change in quantity**

In the case of *Ice Cream Wonderland* we can calculate marginal revenue as follows. We divide USD 40 (i.e. change in revenue) by 20 cones (i.e. change in quantity). Thus, at the current level of output, marginal revenue equals USD 2.00 per ice cream cone.

Marginal revenue is defined as the revenue gained by producing one more unit of a product or service. This is important because it helps firms to make efficient production decisions and maximize profits. To calculate marginal revenue, we can follow a simple three-step process: (1) calculate change in revenue, (2) calculate change in quantity, and (3) divide change in revenue by change in quantity.

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]]>The post How to Calculate Marginal Cost appeared first on Quickonomics.

]]>First, we have to calculate the change in cost. In most cases, costs increase or decrease according to the level of output. A higher output usually results in higher costs while a lower output results in lower costs. The reason for this is the presence of variable costs. Variable costs are directly related to the level of output that is being produced and therefore increase or decrease accordingly. In addition to that, step costs (or step fixed costs) can also push costs, whenever a specific level of output is reached. Now, calculating the change in cost is really simple. All we have to do is take the cost after the change in output (i.e. new cost) and subtract it from the cost before the change (i.e. old cost). This results in the following formula:

*Change in cost = new cost – old cost*

To give an example, let’s assume you own a burger restaurant: *Deli Burger*. Yesterday you sold 100 burgers, which resulted in total costs of USD 300. Today you sell 102 burgers. Therefore you need two additional patties, more buns, more lettuce, etc. As a result, your total costs increase to USD 304. Hence the change in cost is USD 4.00 (304 – 300).

Next, we have to calculate the change in quantity. A change in the level of output is synonymous with a change in quantity. That is, when the level of output increases, the quantity supplied of a good or service increases and vice versa. Computing a change in quantity works just like computing a change in cost. All we need to do is take the quantity after the change in output (i.e. new quantity) and deduct that from the quantity before the change (i.e. old quantity). This gives us the following formula:

**Change in quantity = new quantity – old quantity **

In the case of *Deli Burger, *the change in quantity is 2 burgers (102 -100). Please note, even though marginal cost is defined as the change in cost incurred by producing *one* more unit of a good or service, we can still calculate it for any given number of additional units.

Finally, we can calculate marginal cost by dividing the change in cost by the change in quantity. To understand why we do this, just take another look at the definition: marginal cost is *the cost incurred by producing one more unit of output*. In other words, it is the increase in cost *per* additional unit. However, because it depends on the change in cost and the change in quantity, marginal cost can vary as the current level of output changes. That means, the marginal cost of selling 11 instead of 10 units may be different from the marginal cost of selling 101 units instead of 100 (even though the change in quantity is the same). Hence, we can use the following formula to calculate marginal cost:

**Marginal cost = change in cost / change in quantity**

Going back to our *Deli Burger* example, let’s calculate marginal cost for your 101^{st} and 102^{nd }burgers. If we plug the numbers from above into our formula we get the following equation: USD 4.00 / 2 burgers = USD 2.00. Hence, the marginal cost of producing two additional burgers at this point is USD 2.00 per burger.

Marginal cost is defined as the cost incurred by producing one more unit of a product or service. This is an important concept in economic theory because it is one of the foundations of profit maximization. We can calculate marginal cost by following three simple steps: (1) calculate change in costs, (2) calculate change in quantity, and (3) divide change in cost by change in quantity.

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]]>The post The Four Types of Economic Utility appeared first on Quickonomics.

]]>Form utility is created by the design of the product or service itself. The more specifically a good or service is targeted towards customer needs and desires, the higher its perceived added value (i.e. form utility) will be. In other words, form utility is obtained by transforming customer needs into products or services. To do this, companies analyze their target markets and survey potential customers to find out what they need. This information can then be used to align product features with actual customer needs. Thus, form utility can be created through things such as high quality materials, ergonomic design, or a wide selection of options to chose from.

To give an example of form utility, think of a car manufacturing company. We’ll call it *Super Cars*. In theory, this company could sell all the parts of their cars separately. However, by assembling the parts (and actually manufacturing cars) *Super Cars* adds significant value for their customers and thereby increases form utility.

Place utility can be obtained through the process of making a good or service more easily available to potential customers. The easier it is to purchase a product, the more attractive it becomes. Thus, place utility has a lot to do with distribution channels and the physical locations at which goods or services are sold. Additionally, some economists argue that even things like the discoverability of the product on the internet through search engine optimization has an effect on place utility. After all, a wide variety of goods and services can be bought online these days.

Going back to our example from above, let’s assume *Super Cars* is an American company. If its cars are sold exclusively within the US, buying a* Super Car* is obviously not very attractive for Europeans. However, if the company decides to open dealerships across Europe and sell *Super Cars* overseas, availability (i.e. place utility) of its cars for European customers increases.

Time utility is created by providing easy availability of a good or service at the time when customers need or want it. The more easily and quickly a product can be purchased (and used) at that time, the higher its perceived time utility is. In addition to that, time utility is always high in times of scarcity. Hence, a company’s supply chain management has a significant impact on time utility. Among others, this includes processes such as logistics and delivery as well as storage. Companies are constantly improving their supply chain management, which has led to services such as same-day delivery and 24/7 availability.

In the case of *Super Cars*, one way to increase time utility would be to reduce delivery times. Customers often have to wait several weeks or even months for a new car. However, many of them need their vehicles as soon as possible. Thus, if *Super Cars* manages to reduce delivery times by even just a few days, its cars become more attractive to potential customers.

Possession utility describes the benefits that can be derived from owning and using a specific product. Generally speaking, the more “useful” a product is to an individual, the higher its possession utility will be. In some cases – especially according to marketing theory – the term possession utility is also used in the context of facilitating possession, i.e. through easy payment methods such as credit cards or leasing contracts. The reasoning behind this is that a simpler acquisition process usually leads to a higher perceived value of a good or service.

For example, possession utility can be created whenever a client is handed the keys to their new *Super Car*. Simply because from that moment they have possession of the car and are free to do whatever they want to do with it. Additionally, *Super Cars* can create possession utility by offering leasing contracts, which make it easier for potential customers to actually get access to a new car.

In the field of behavioral economics the term utility refers to the perceived value (i.e. usefulness) an individual receives when they purchase a good or service. There are four different types of utility: form, place, time, and possession utility. Form utility is created by the design of the product or service itself. Place utility can be obtained through the process of making a good or service more easily available to potential customers. Time utility is created by providing easy availability of a good or service at the time when customers need or want it. And last but not least, possession utility describes the benefits that can be derived from owning and using a specific product.

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]]>The post How to Calculate a Linear Supply Function appeared first on Quickonomics.

]]>In its most basic form, a linear demand function looks as follows: *y = mx + b*. In this case, *x* and *y* represent the independent and dependent variables. Meanwhile, *m* shows the slope of the function and *b* represents its y-intersect (i.e. the point where the function intersects the y-axis). To illustrate this, let’s calculate the supply function of an imaginary candy bar factory, called *SuperCandy*. We will call the function *S _{q}*, with

To calculate a linear supply function we need to know the quantities supplied for at least two different prices. This allows us to create what we call two ordered pairs *(x _{1},y_{1})* and

With the two ordered pairs and the basic linear function, we can now calculate the slope of the supply function. The slope is defined as the change in price, divided by the change in quantity supplied between two points (i.e. the two ordered pairs). We can use the following formula to calculate it: m = (*y _{2 }–*

Now that we have calculated the slope of the function, we can plug that value into the initial function (instead of m). Then all we need to do is plug in the values of one ordered pair, which allows us to calculate the y-intersect of the function (by solving the equation for b). Revisiting our example, we can update the initial linear function to include the slope (i.e. *S _{q} = 0.004q + b). *Next, we simply replace

Last but not least, we can use the second ordered pair to double-check our result. Please note that this step is optional, however it might come in handy during exams or quizzes. All we need to do is plug the values of the second pair into the supply function we just calculated and see if the equation is still correct. If we do this with the values from our example above (750, 1) we get the following equation: 1 = 0.004*750 – 2. As you can see, this equation still holds true. Thus, the supply function we calculated above must be correct.

In economics, we often use linear supply and demand functions to make calculations. This makes it easier to work with them, which in turn allows us to analyze and understand a wide range of basic economic concepts. To calculate linear supply functions, we can follow a simple four step process: (1) Write down the basic linear function, (2) find two ordered pairs of price and quantity, (3) calculate the slope of the supply function, and (4) calculate its y-intercept.

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]]>The post How to Calculate Producer Surplus appeared first on Quickonomics.

]]>In the following paragraphs, we will take a closer look at how to calculate producer surplus. To do this, we will follow a simple 4-step process: (1) draw the supply and demand curves, (2) find the market price, (3) connect the price axis and the market price, and (4) calculate the area of the lower triangle.

The calculation of producer surplus works pretty much like the calculation of consumer surplus. We start with a supply and demand diagram. As you can see in the diagram above, the x-axis shows quantity while the y-axis shows price (in USD). *Hint: If you are not familiar with the concept of supply and demand at this point, please make sure to read our article on the law of supply and demand first.*

We will walk through the process with the help of a simple example. Let’s take the market for burgers. Before we can calculate a supply and demand diagram for this market, we need to know the supply and demand functions first. We will look at how to calculate them in different posts (how to calculate a demand function / how to calculate a supply function), for now, let’s just assume that the demand function is Q_{D} = -0.006x + 6 and the supply function is Q_{S}=0.006x. We use linear functions here (y = ax + b) for the sake of simplicity. However, please note that supply and demand functions do not necessarily have to be linear. With that being said, we can now use the two functions to draw our supply and demand curves.

Once we have our supply and demand diagram, we can find the market price. It is located at the intersection of the supply and the demand curve (i.e. the market equilibrium). That means, to calculate the market price we have to set the demand function equal to the supply function and solve for x. This gives us the equilibrium quantity. Then, all we need to do is plug the result back into the supply function and solve for Q_{S} to get the equilibrium price.

Using our example, the equilibrium quantity can be calculated as -0.006x + 6 = 0.006x. In this equation, x equals 500. That means, when the market is in equilibrium, a total of 500 burgers can be sold. Now, to find the market price, we need to plug this number back into the supply function (p = 0.006*500), which results in a market price of USD 3.00. Hence, when the market is in equilibrium, 500 burgers can be sold at a price of USD 3.00 each.

Once we have calculated the market price and quantity, we can add these numbers to the supply and demand diagram. As you can see, the market price is generally not the lowest possible price at which the good or service could be sold. This means, there are at least some sellers who would have been willing to sell the product at a lower price than the actual market price. These sellers can now earn a producer surplus, equal to the market price minus their individual willingness to sell. We can illustrate this by drawing a horizontal line between the y-axis and the market equilibrium (i.e. the intersection of S and D).

If we draw this horizontal line for our example, we see that it intersects the y-axis at a price of USD 3.00. As you can see in the illustration above, the line divides the area between the supply and the demand curve into two triangles. One triangle above the USD 3.00 line and another one below. The area of the lower triangle represents the sum of all individual producer surpluses, which equals total producer surplus.

To calculate the area of the lower triangle, we need to multiply its base with the height and divide the result by two (a = [b*h]/2). Please note that this formula only works with linear demand curves. Other types of demand curves require a more complex formula to calculate the area between two curves (see Wolfram|Alpha for more information).

If we apply this to our example, we can easily calculate the area of the lower triangle. We know that the base of the triangle is 500 and its height is 3.00. Thus, we can use the following equation: (500*3)/2 = 750.00. Thus, total producer surplus in our burger market is equal to USD 750.00.

Producer Surplus describes the difference between the amount of money at which sellers are willing and able to sell a good or service (i.e. willingness to sell) and the amount they actually end up receiving (i.e. the market price). Calculating producer surplus follows a 4-step process: (1) draw the supply and demand curves, (2) find the market price, (3) connect the price axis and the market price, and (4) calculate the area of the lower triangle.

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]]>The post Most Popular Posts of 2017 appeared first on Quickonomics.

]]>By the end of the year we had published a total of 108 posts across five categories: Infographics, Microeconomics, Macroeconomics, Basic Principles, and our Glossary. Like every year, we have analyzed all of them and created an overview of the most popular posts of 2017 by categories. So, without further ado, here’s the list.

We only published one infographic in 2017. It performed quite well on social media (facebook, twitter, and reddit), which is the main reason why it tops the list. The other two infographics in the top 3 have accumulated most of their views through organic search or referral traffic. We plan to publish more infographics again this year, thus it will be interesting to see how this section develops. But for now, these are the top 3 infographics of 2017:

1. 12 Things You Should Know About Economics – 2,958 views (published in 2017)

2. Overview of the German Economy 2016 – 2,113 views (94 in 2016)

3. Indian Economy at a Glance – 1,173 views (864 in 2016)

Like last year, the Microeconomics section has performed exceptionally well in 2017. The post “Positive Externalities vs Negative Externalities” still remains on top of the list. Meanwhile, it is worth noting that its views have more than tripled over the course of the year. All posts in this section got the majority of their views from organic search traffic. This is great news, especially considering that two out of the top 3 articles were only just published in 2017.

1. Positive Externalities vs. Negative Externalities – 44,434 views (12,527 in 2016)

2. How to Calculate Tax Incidence – 12,953 views (published in 2017)

3. Four Properties of Indifference Curves – 9,038 views (published in 2017)

The Macroeconomics section has also seen quite a few changes over the last few months. Last year’s winner (“Limitations of GDP as an Indicator of Welfare”) gotten more than twice as many views in 2017 than in the previous year. However, it still had to give way to the article “Calculating Consumer Price Index (CPI)”, which was published in March 2017. Check out the top 3 below:

1. Calculating Consumer Price Index (CPI) – 26,297 views (published in 2017)

2. Limitations of GDP as an Indicator of Welfare – 15,407 views (6,806 in 2015)

3. Government Policies to Reduce Poverty – 10,074 views (published in 2017)

The Basic Principles section has experienced an astounding amount of growth last year. Across all categories, the article “The Four Types of Market Structures” has accumulated the most views. By far. In addition to that, many of the Basic Principles posts that were only recently published in 2017 have performed exceptionally well. Let’s take a look at the top 3 below:

1. The Four Types of Market Structures – 121,065 views (703 in 2016)

2. The Four Types of Economic Systems – 43,783 views (published in 2017)

3. The Four Different Types of Money – 21,562 views (82 in 2016)

Like every year, the Glossary posts did not account for many views in 2017. This is not a surprise though, as their only purpose is to help our readers to understanding potentially difficult words from other posts. Below you can find the top 3 from this section:

1. Inflation – 59 views (11 in 2016)

2. Accounting Profit 17 views (12 in 2016)

3. Adverse Selection 15 views (9 views in 2015)

After an incredible year, we have counted a total of **426,348** views (43,100 in 2016) on **108** posts (84 in 2016) in 2017. Thank you once again for all the support and feedback. Stay tuned for more interesting and exciting content in 2018.

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]]>The post How to Calculate a Linear Demand Function appeared first on Quickonomics.

]]>The most basic form of a linear function is *y = mx + b*. In this equation, *m* represents the slope of the function, whereas *b* is the point where the line intersects the y-axis (i.e. the y-intersect). To give a simple example, let’s calculate a demand function for ice cream. In that case, we’ll call the basic demand function *D _{q}*, where

For the next step, we need some additional information. More specifically, we need to know the quantities demanded for at least two different prices. With this information we can create two ordered pairs in the form of *(x _{1},y_{1})* and

Now that we have the two ordered pairs, we can use them to calculate the slope of the demand function. The slope can be computed as the change in price divided by the change in quantity demanded between the two pairs. That means, we can use the following formula: m = (*y _{2 }–*

Next we can update the initial function to include the actual slope (instead of m). This allows us to calculate the y-intersect of the demand function by plugging in the values of one ordered pair and solving the resulting equation for b. In our example, that means we update our initial linear function to include the slope: *D _{q} = -0.005q + b*. Now we plug in the values of our first ordered pair (1000, 2.00), which results in the following equation: 2.00 = (-0.005*1000) + b. When we solve this for b, we find that the y-intersect is

If you want to make sure you calculated everything correctly, you can use the second ordered pair to double-check your demand function. To do this, simply plug the values into the demand function and see if the equation is still correct. For example, let’s use the values of our second ordered pair (800, 3.00) to validate the demand function *D _{q} = -0.005q + 7*. The resulting equation is 3.00 = (-0.005*800) + 7, which still holds true and thus validates our result.

For the sake of simplicity we often assume that demand functions are linear. This makes it easier to compute them, which in turn is important to analyze and understand many basic economic concepts. Calculating linear demand functions follows a simple four step process: (1) Write down the basic linear function, (2) find two ordered pairs of price and quantity, (3) calculate the slope of the demand function, and (4) calculate its y-intercept.

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