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Question
Suppose the demand and supply equations of a commodity X in a perfectly competitive market are given by :
Qd = 1700 – 2P
Qs = 1300 + 3P
Calculate the value of equilibrium price and equilibrium quantity of the commodity X.
Solution
At the point of equilibrium, demand is equal to supply in a perfectly competitive market.
So, Qd = 1700 – 2P
Qs = 1300 + 3P
At point of equilibrium,
Qd = Qs
= 1700 – 2P = 1300 + 3P
= 1700 – 1300 = 3P + 2P
= 400 = 5P
400/5 = Pe
80 = Pe
Qe = 1700 – 2 (80)
= 1700 – 160
= 1540
The equilibrium price is equal to 80 and the equilibrium quantity is equal to 1540 units of a commodity X.
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