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Unformatted text preview: Then we can substitute = 7.2 in either the demand or the supply equation and derive the equilibrium quantity. In the demand: = 20 2 7.2 = 5.6 (or in the supply: = 2 + 0.5 7.2 = 5.6). So the equilibrium price ( p* ) is 7.2 and the equilibrium quantity ( q* ) is 5.6. Special Case Sometimes the supply curve might not be well behaved. An example is the vertical supply curve (totally inelastic). This curve has the form = some number. For example = 10 is a vertical supply curve and means that no matter what the price is the production will be always 10 units. In this case, the derivation of the equilibrium is even simpler. From the supply function = 10 we already know that the equilibrium value of will be 10. Then, we just plug = 10 in the demand equation and we derive the equilibrium ....
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- Spring '07