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Linear demand and supply equations

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Reference no: EM132478911

Assume the following linear demand and supply equations:

Qd: 50 - 75P

Qs: 20 + 25P

(a). Calculate equilibrium price and quantity.

(b). What will happen if price is fixed at .2?

(a)  Equate Qd and Qs

50 - 75P = 20 +25 P

50 - 20 = 25P + 75P

30 = 100 P  

P = .3

To obtain Q, plug in the value of P in either equation

Qd: 50 - 75P = 50 - 75(.3) = 27.5

Qs: 20 + 25P = 20 + 25(.3) = 27.5

(b). If p = .2,

Qd: 50 - 75P = 50 - 75(.2) = 35

Qs: 20 + 25P = 20 + 25(.2) = 25

There will be a shortage or excess demand equal to (35-25) = 10 units

Reference no: EM132478911

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