Question

Suppose in a market for iTune cards demand is Qd = 1500 - 250P, and supply is Qs = 850P. Find the equilibrium P* and Q*.

Answer 1

At equilibrium point, the demand equation is equal to the supply equation.

Given that the demand is Qd = 1500 - 250P, and supply is Qs = 850P, at equilibrium,

1500 - 250P = 850P

850P + 250P = 1500

1,100P = 1,500

P = $1.36

and the equilibruim Q is 1500 - 250(1.36) = 1,159

Therefore, the equilibruim P* is $1.36 and the equilibruim Q* is 1,159.