Answer to Question #168536 in Microeconomics for DANCAN

Question

1.     Suppose the market demand curve for a good is Qd=1000-10p and the market supply curve is given by Qs=100+20p required.

       i.           Calculate the equilibrium price.

     ii.           Calculate the equilibrium quantity.

   iii.           Illustrate the concept of market equilibrium

Answer 1

(i) The market equilibrium occurs when $Q_d=Q_s.$ Let's equate market demand and supply functions and find the equilibrium price:

$$1000-10P_E=100+20P_E,$$ $$900=30P_E,$$ $$P_E=\$30.$$

(ii) Let's substitute $P_E$ into the market demand function and find the equilibrium quantity:

$$Q_E=1000-10\cdot\$30=700.$$

(iii) Let's plot the market demand and supply curves in a graph and illustrate the concept of market equilibrium:

As we can see from the graph, the market equilibrium occurs when the supply and demand curves intersects (where the quantity demanded and quantity supplied are equal). The equilibrium price equals $30 and equilibrium quantity equals 700 units.