Question

You are given the following market demand and supply functions for an

important medicine to fight covid-19, a deadly & viral disease.

Market Demand: P=160 - Q

Market Supply: P= 40+4Q

(i) Draw the demand and supply diagram and calculate the price-quantity pair

that enables business transaction to take place between the class of buyers and

sellers. [4

marks]

Answer 1

Equilibrium in the market will occur at the point where the quantity demanded is equal to the quantity supplied.

Equating the demand curve to the supply curve:

$$160 - Q = 40 + 4Q$$

$$5Q = 110$$

$$Q^* = \dfrac{110}{5} = 22$$

The equilibrium price is:

$$^*P = 160 - 22 = 138$$