Question

Suppose the demand function for a good is given as Qd= 90-3P and the supply function is given as Qs= 30+7P. Find the equilibrium price and equilibrium quantity for this good. Also, using a diagram, explain for what price there will be an excess supply and excess demand for this good in the market.

Answer 1

At equilibrium price, quantity demanded is equals to quantity supplied.

From the equations above we can say that p is our equilibrium price.

to find p

QD=QS

$90-3p = 30+7p$

solving

60=10p

p= $\frac{60}{10}$

p=6 (equilibrium price)

to find the equilibrium quantity, we substitute equilibrium price with p in either equation

equilibrium quantity = 90-3x6)

equilibrium quantity = 72.

Diagram explanation

From the diagram ,price beyond 6 will increase price from p to p2 while demand changes from q to q2 hence excess supply but price below 6 ( equilibrium price) will reduce price from p to p1 thus increasing demand from q to q1 hence excess demand( above supply curve).