Suppose a change occurs in the market such that Q D 14 0 P

Suppose a change occurs in the market such that Q D = 14 0 – P and Q S = P – 2. Calculate the new market equilibrium price (P**) and quantity (Q**). ( 5 points )

Solution

Q D = 14 0 – P

Q S = P – 2.

The equilibrium point will occur at a point where Quantity demand is equal to the quantity supplied.

140-P = P – 2.

P+P=140+2

2P =142

P =142/2

P =$71

The equilibrium price will be $71

Substituting P into the demand equation.

Q D = 14 0 – 71

Q D = 69 units

Hence the equilibrium quantity will be 69 units.