Question

Let the demand and supply functions for a commodity be

Qt=D(P,Y₀) (Dp<0; D Y₀>0)
Qs=S(P,T₀) (Sp>0; ST₀<0)
where Y₀ is income and T₀ is the tax on the commodity. All derivatives are continuous.
Write the equilibrium condition in a single equation.

Answer 1

The equilibrium condition can be written as 16-2P = 2 + 5P. The equilibrium price can be found by solving this equation. At equilibrium, the quantity demanded is equal to the quantity supplied.

Step-by-step explanation:

Since Qd = Qs, we can set the demand and supply equation equal to each other:

16-2P = 2 + 5P

Subtracting 2 from both sides and adding 2P to both sides yields:

18P = 14

Dividing both sides by 18 gives:

P = 0.78

• Equilibrium is the point where quantity demanded is equal to quantity supplied.
• If the price is above the equilibrium, there will be an excess supply.
• If the price is below the equilibrium, there will be an excess demand.