Question

suppose the absolute values of the intercept and slope of the demand function are approximated to be 10 and 3 respectively. if the absolute values of the intercept and slope of the supply function are assessed to be 6 and 5 respectively. calculate equilibrium price and quantity .

Answer 1

The equilibrium price is $0.5 while the equilibrium quantity is 8.5

From the Demand data that we have in this question,

Slope = 3

Intercept = 10

The demand equation

D = -3p + 10

D = 10 - 3p

The supply data

Slope = 5

Intercept  = 6

Supply equation

S = 6 + 5p

D = S

This is because at equilibrium, supply = demand

Therefore,

10-3P = 6+5P

collect like terms

10-6 = 3p+5p

4 = 8p

Divide through by 8

$p =\frac{4}{8} \\\\= \frac{1}{2}$

Equilibrium price = $0.5

The equilibrium quantity

D = 10 - 3*0.5

= 10-1.5

= 8.5

Therefore from the calculation, the equilibrium price is $0.5 and the equilibrium quantity is 8.5

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