Question

Market Equilibrium 

Using the demand function, , and the supply function, , for coffee, 

Determine the equilibrium price and quantity of coffee if Y=$55, ps=0.20, and pc=$5. 

Draw the demand and supply curves and illustrate this equilibrium in a diagram.

Answer 1

The equation of quantity demand (Qd) is calculated as;

$Qd=85.6-10p-3(0.2)+55$

$85.6-10p-0.6+55$

$=140-10p$

a)

The equation of quantity supply (Qs) is calculated as;

$Qs=96+5p-2(5)$

$=96+5p-10$

$=86+5p$

At equilibrium Qd= Qs

Hence,

$140-10p=86+5p$

$54=15p$

$p=3.6$

The equilibrium price is $\$3.6$

Equilibrium quantity is calculated as;

$=86+5(3.6)$

$=86+18$

$=140$

The equilibrium quantity is 140

b)