Question

Let the market supply function of 2000 sellers is given as Qs = 4000 + 20Px. and the individual demand function of 5000 buyers is given as 2px = 1500 – 0.2Qd. Then compute

A.  The market clearing price. B.  The equilibrium quantity. C.  Explain graphically.

Answer 1

At equilibrium: Qd = Qs

$Q_d = 7500 – 10p_x$

$7500 – 10p_x = 4000 + 20p_x$

$7500 – 4000 = 20p_x + 10p_x$

$3500 = 30p_x$

$P_x = 117$

b) Equilibrium quantity

Qd = 7500 – 10(117) = 7500 – 1170 = 6330 units

c) Graphic representation