Question

Imagine the tea market has a demand function of QDX = 10 – 2PX and a supply function of QSX = PX − 2, where PX is the price of the tea. Assuming the price is at equilibrium, calculate the equilibrium price (P*).

Answer 1

At equilibrium, $Q_{DX}=Q_{SX}$, therefore:

$$10-2P_X=P_X-2,$$ $$3P_X=12,$$ $$P^*=P_X=\$4.$$