Question

Suppose demand is given by Qd =1000-25P and supply is given by Qs=75P

(a) Calculate the equilibrium price and quantity.

(b) Assuming the demand curve changes to Qd =1000-5P, calculate the new equilibrium price and quantity.

(c) Use a diagram to illustrate your answer for part a and b.

Answer 1

(a)

$Qd=Qs\\100-25p=75p\\1000=75p+25p\\1000=100p\\p=10$

$Q=75×10\\=750$

(b)

$Qd=Qs\\100-5p=75p\\1000=75p+5p\\1000=80p\\p=12.5$

$Q=75×12.5\\=937.5$

(C)The increase in demand from D1 to D2 will rise the equilibrium price from P1 to P2 as the equilibrium quantity increase from Q1 to Q2.