The constant evolution of problems in the world of business necessitates the acquisition of new methods of dealing with the deficiencies. In an attempt to deal with these urgencies, equations can be applied to provide a solution. One such equation is a simultaneous equation that attempts to solve the question of demand and supply. The equation D=a0+ a1p+a2y+Ei ; is such equation
In the equation, D represents the demanded quantity, S represents the supplied quantity, y represents income while w represents the index of weather conditions. a and b are autonomous variables (YoungSeok & Jang 2020). The endogenous values are D, S, and P, while exogenous values are y and w. E is the error term.
In the solution for the equations, the demand equation is equated to the supply equation. That is D(a0+a1+a2y+Ei) = S(b0+b1+b2y+Ei). This demand and supply equation is applicable in the determination of output within an enterprise. For instance, it can be used to determine the demand for commodities in the market and the required supply to satisfy the pending demand. Also, when the demand is higher than the supply, the equation, the firm can use the equation to increase their output or vice versa. Moreover, the equation can be used to determine the price to sell their commodities as the price is attained at equilibrium; price elasticity.
Ideally, before setting up a business, the simultaneous equation is basic. When data of the parameters are accurately collected, the survival of the business is almost guaranteed. This is because the business can absorb high amounts of external environmental factors without causing a negative impact on the turnover rate. For this reason, the equation should be embraced for use in both existing and upcoming enterprises.
YoungSeok, S. O. H. N., Kim, Y., & Jang, Y. E. (2020). U.S. Patent Application No. 16/224,806.