Question

Q4. Assume that demand for a commodity is represented by the equation
P = 10 - 0.2Qd
and supply by the equation
P = 2 + 0.2Qs,
where Qd and Qs are quantity demanded and quantity supplied, respectively ,and P is
price. Using the equilibrium condition Qs = Qd, solve the equations to determine equilibrium
price and equilibrium quantity. Graph the two equations to substantiate your answers. Answer
in the space below!

Answer 1

Consider P = 10 - 0.2Qd

P+0.2Qd=10

0.2Qd=10-P

Qd=(10-P)/0.2

Qd= 50- 5P is the demand equation for the commodity

Consider P = 2 + 0.2Qs

P-0.2Qs=2

0.2Qs= -2+P

Qs=(-2+P)/0.2

Qs= -10+5P is the supply equation for the commodity.

At equilibrium Qs=Qd

-10+5P= 50-5P

10P=60

P=6

Substitute P=6 in either demand or supply equation.

Qd= 50-5(6)

Qd= 20=Qs

To graph the equations, we can create a demand and supply schedule.

Price	Quantity demand Qd	Quantity supply Qs
2	40	0
4	30	10
6	20	20
8	10	30
10	0	40

The equilibrium is at the point where the demand and supply curves interest. The equilibrium price is 6 and the equilibrium quantity is 20 units.