Calculation of equilibrium quantity and equilibrium price At equilibrium: Quantity demanded at price P (QD) is equal to Quantity supplied at price P (QS) Thus at equilibrium: QD=QS

Calculation of equilibrium quantity and equilibrium price Thus if you have equations for demand and supply and you are expected to calculate the equilibrium quantity, you have to remember that at equilibrium: QD=QS

Calculation of equilibrium quantity and equilibrium price Example: The demand curve for bottled water is QD = 100 - 6P and the supply curve is QS = 28 + 3P. What is the equilibrium price the equilibrium quantity

Calculation of equilibrium quantity and equilibrium price Let’s calculate the equilibrium price first Calculation of equilibrium quantity and equilibrium price Example: The demand curve for bottled water is QD = 100 - 6P and the supply curve is QS = 28 + 3P. What is the equilibrium price At equilibrium QD=QS Thus we can say: 100 - 6P = 28 + 3P 100 - 28 = 3P + 6P 72 = 9P 72/9 = P 8 = P The equilibrium price is therefore 8. Now we get all the parts containing the variable P on one side This is the equation representing QD …and this is the equation representing QS

Calculation of equilibrium quantity and equilibrium price Now we can calculate the equilibrium quantity by replacing the price of 8 (calculated in the previous slide) in either of the two equations You can see the answers are the same – that is because the market is in equilibrium where QD = QS Example: The demand curve for bottled water is QD = 100 - 6P and the supply curve is QS = 28 + 3P. What is the equilibrium price the equilibrium quantity At equilibrium QD=QS Thus we can say: 100 - 6P = 28 + 3P 100-28 = 3P+9P 72 = 12P 72/12 = P 6 = P The equilibrium price is therefore 6. Now we replace it in the equation representing the supply Let’s first replace it in the equation representing the demand Demand equation: QD = 100-6P As P=8: QD = 100 – 6(8) QD = 100 - 48 QD = 52 Supply equation: QS = 28 + 3P As P=8: QS = 28 + 3(8) QS = 28 + 24 QS = 52

Calculation of equilibrium quantity and equilibrium price New example: The demand curve for bread is P = 60 – 1,4QD and the supply curve is P = -60 + 1,6QS. Calculate: The equilibrium quantity The equilibrium price Sometimes the equations are given in terms of what the price is equal to, so let’s look at another example Now we shall first have to calculate the equilibrium quantity and then use that information to calculate the equilibrium price

Calculation of equilibrium quantity and equilibrium price Now we can calculate the equilibrium quantity by making these two equations equal: New example: The demand curve for bread is P = 60 – 1,4QD and the supply curve is P = -60 + 1,6QS. Calculate: The equilibrium quantity Thus P = 60 - 1,4Qe And P = -60 + 1,6Qe 60 - 1,4Qe = -60 + 1,6Qe 60 + 60 = 1,6Qe + 1,4Qe 120 = 3Qe 120/3 = Qe 40 = Qe At equilibrium QD is equal to QS, thus we replace QD and QS in both equations with Qe Take all the parts containing a variable to the same side

Calculation of equilibrium quantity and equilibrium price Now we can calculate the equilibrium price by replacing the equilibrium quantity of 40 in either of the two equations New example: The demand curve for bread is P = 60 – 1,4QD and the supply curve is P = -60 + 1,6QS. Calculate: The equilibrium quantity The equilibrium price You can see the prices are equal – there is only one equilibrium price! …and now the one with QS P = 60 – 1,4QD P = 60 – 1,4(40) P = 60 – 56 P = 4 P = -60 + 1,6QS P = -60 + 1,6(40) P = -60 + 64 P = 4 Let’s first use the one with QD