Question

The demand and supply equations of a commodity in a perfectly competitive market are given as qd = 700 – P qs = 500 + 3P Calculate: 

(a) Equilibrium price 

(b) Equilibrium quantity 

(c) Based on the given supply and demand equations draw equilibrium situation on a diagram.

Answer 1

(a) Equilibrium price

qd = qs

700 - p = 500 + 3P

700 - 500 = 3P + P

200 = 4P

∴ P = \(\frac{200}{4}\) = 50

(b) Equilibrium quantity

qd = 700 – P

= 700 – 50

= 650

(c)