Question

Suppose the absolute values of the intercept and slope of the demand function

are approximated to be ten (10) and three (3) respectively. If the absolute

values of the intercept and slope of the supply function are assessed to be six (6),

and five (5) respectively, calculate equilibrium price and quantity (4

Answer 1

A general demand function is written as :

$Qd=a-bP$

Qd-Quantity demanded

a-Intercept :It is Qd when P is 0

b-Slope : It measures how much Qd changes when P changes.

P-Price

Given:

$Qd=a-bP$

So, the demand function is

$Qd=10-3P$

 

A general supply function is written as :

$Qs=c+dP$

Qs-Quantity supplied

c-Intercept :It is Qs when P is 0

d-Slope : It measures how much Qs changes when P changes.

P-Price

Given:

$c=6\\ d=5$

So, the supply function is

$Qs=6+5P$

At equilibrium: $Qd=Qs$

$Qd=10-3P\\ Qs=6+5P\\ Qd=Qs\\ 10-3P=6+5P\\ 8P=4\\ P^*=0.5\\ Q^*=8.5$