Question

Find market equilibrium price, P∗ , and quantity, Q∗

given the following: Qd=2,460−5P and Qs=−40+20P. Use Excel to plot the Supply and Demand curves and to illustrate the market equilibrium. Copy your graph(s) into this document on the final page.

Answer 1

The market equilibrium price and quantity can be found by graphing the supply and demand curves. At the equilibrium point, where the quantity supplied equals the quantity demanded, the price is $2 and the quantity is 12.

Step-by-step explanation:

If algebra is not your forte, you can still find the market equilibrium by using graphs. Take the equations for Qd (quantity demanded) and Qs (quantity supplied) and graph them on the same set of axes. The demand curve is represented by the equation P = 8 - 0.5Qd, where P is the price and Qd is the quantity demanded. The supply curve is represented by the equation P = -0.4 + 0.2Qs, where Qs is the quantity supplied. By carefully graphing these equations, you will notice that at the point where the quantity supplied equals the quantity demanded (Qs = Qd), the price is $2 and the quantity is 12. This is the market equilibrium price (P*) and quantity (Q*), as predicted by the algebraic calculations.