Question

Assume that demand for a commodity is represented by the equation P=10−0.2Qd. Supply is represented by the equation P=2+0.2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price.
1: Solve the equations to determine equilibrium price.
2: Now determine equilibrium quantity.
3: Graph the two equations to substantiate your answers and label these two graphs as D1 and S1.
4: Furthermore; assume the demand for this product increases because of a change in income.

Answer 1

Quantity demanded is the amount of a good demanded by a consumer and on the other hand the quantity supplied is the good supplied by the supplier.

Explanation:

Qs = Qd

5P - 10 = 50 - 5P

5P + 5P = 50 + 10

10P = 60

P = 60/10

P = 6

So the equilibrium price (P) is 6

Now substitute the equilibrium price P = 6 in either the Qs or Qd function to get the equilibrium quantity. (The answer should be the same regardless of which equation you use.)

Qd = 50 - 5P

Qd = 50 - 5(6)

Qd = 50 - 30

Qd = 20

So the equilibrium quantity (Q) is 20.

With the increase in the demand of the good, the price of the good will also increase because the supply of the good will not change, so increasing price of the good.