The table shows the demand and supply schedules for pretzels

The table shows the demand and supply schedules for pretzels. What to the market equilibrium in the pretzel market?

Solution

We know that,

Demand equation is given as :

Qd = a - bP

where, Qd is quantity demanded, P is price, a and b are constants.

From the data,

3500 = a - 1.5b ......................................................................(1)

2500 = a - 2b..........................................................................(2)

solving above two equations, we get ,

a = 6500 and b = 2000

which means, Qd = 6500 - 2000P........................................................................(3)

Similarly,

we know that supply equation is given by,

Qs = c - dP

Where, Qs is quantity supplied, P is price, c and d are constants.

From the data, we get the equations,

2500 = c + 1.5d............................................................................(4)

3500 = c + 2d...............................................................................(5)

From the above two equations ,we get C = -500 and D = 2000.

Qs = -500 + 2000P.

1) At equilibrium , quantity demanded = quantity supplied

Qd = Qs

6500 - 2000P = -500 +2000P

4000P = 7000

P = 1.75

Equilibrium price is 1.75

2) Equilibrium quantity

At P = 1.75, Qs = Qd = 6500 - 2000(1.75)

Qs = Qd = 3000.