Question

3.2 The demand function is Q = 100-p, and the sup- ly function is Q = 20 + 3p. Determine the equilib- rium price and quantity

Answer 1

Given the demand function QD = 100 - P

the supply function QS = 20 + 3P

Now, to determine the equilibrium price and quantity we need to equate both these demand and supply functions as :-

• 100 - P = 20 + 3P
• 100 - 20 = 3P + P
• 4P = 80
• P = 80/4
• P = 20.

Now we obtained the equilibrium price as $80.

Next we substitute this Value of P in either demand or supply function to get equilibrium Quantity.

Substituting P in demand function, we get:-

QD = 100 - 80 = 20.

Hence the equilibrium quantity is 20.

Now we can plot the graph easily to locate the equilibrium price and quantity as:-