Question

Find equilibrium Price and Quantity and Price Elasticity of Demand from the

following demand and supply functions

i. Q=10-2P 2  Q=5+3P

ii. Qd= 200-40P Qs= -40+80P

Answer 1

ANSWER :

(I)

Demand function :  Q = 10 - 2P

Supply function : Q = 5 + 3P 

At equilibrium, Demand quantity = Supply quantity 

So,

10 - 2P = 5 + 3P 

=> 10 - 5 = 3P + 2P

=> 5 = 5P

=> P = 1 (currency unit) 

=> Q = 10 - 2*1 = 8 units 

So, equilibrium Price is 1 (currency unit) and equilibrium Quantity is 8 units.

(ANSWER).

(Ii)

Demand function :  Qd = 200 - 40P

Supply function : Qs = - 40 + 80P

At equilibrium, Qd = Qs

So,

200 - 40P = - 40 + 80P

=> 200 + 40 = 80P + 40P

=> 240 = 120P

=> P = 2 (currency unit) 

=> Q = 200 - 40(2) = 120 units

So, equilibrium Price is 2 (currency unit) and equilibrium Quantity is 120 units.

(ANSWER).