Suppose demand is given by PD 20 03QD and supply is given b

Suppose demand is given by PD = 20 .03QD and supply is given by PS = 6 + .04QS.

What is the equilibrium quantity and what is the equilibrium price?

Solution

Demand should equal to supply to get the equilibrium quantity and price.

PD = 20 – 0.03QD

PS = 6 + 0.04QS

PD = PS

20 – 0.03QD = 6 + 0.04QS

0.07QD = 14

QD = 200

Answer: The equilibrium quantity is 200 units.

Equilibrium price should be calculated as below:

PD = 20 – 0.03QD

      = 20 – 0.03 × 200

      = 20 – 6

      = 14

Answer: Equilibrium price is 14.