2 Suppose that the demand function for corn is orn 20 2Pcorn

2. Suppose that the demand function for corn is orn 20 2Pcorn and the supply function eorn 1.6Prn-7 (a). What is the equilibrium price of corn? b). What is the amount of corn bought and sold in equilibrium?

Solution

2(a)

Qd= 20 - 2P

Qs=1.6P -7

The equilibrium condition are;

Qd=Qs

20 - 2P=1.6P -7

1.6P+2P =20+7

3.6P =27

P =27/3.6

P =$7.5

the equilibrium price of corn is $7.5.

(b)

Substituting P into the demand equation

Qd= 20 - 2P

Qd= 20 - 2(7.5)

Qd= 20 - 15

Qd=5 unit

Qd=Qs=5 units

Hence the equilibrium quantity will be 5 units.