Question

Suppose that the demand Q^Dand supply Q^Sfor maize meal in Kimberley is given by p=120-0.7Q^Dand p=3+0.2Q^S where the quantity is in thousands of kilograms and the price (p) is in rands per kilogram. Answer the following: Find the market equilibrium quantity, and the equilibrium price of maize meal. (2 marks)

Answer 1

20 rands/kg

130,000 kg

Explanation:

The equilibrium quantity and price are the solution to the system of equations ...

p = 120 -0.7q

p = 3 + 0.2q

Setting these equal, we get ...

0.2q +3 = p = -0.7q +120

0.9q = 117 . . . . . . . add 0.7q-3 to both sides

q = 117/0.9 = 130

p = 3 +0.2·130 = 29

The equilibrium price of maize meal is 29 rands per kg; the market equilibrium quantity is 130,000 kg.