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Unformatted text preview: curve and the supply curve.
We can use the equations to find the equilibrium
price and equilibrium quantity. The price of a good
adjusts until the quantity demanded Q D equals the
quantity supplied Q S. So at the equilibrium price (P* )
and equilibrium quantity (Q* ), P* = a - b a
P* = a-c
a1b + d2 - b1a - c2 b+d
ad + bc
b+d Alternatively, using the supply equation, we have Q D = Q S = Q *. P* = c + d a To find the equilibrium price and equilibrium
quantity, substitute Q* for QD in the demand equation
and Q* for QS in the supply equation. Then the price
is the equilibrium price (P*), which gives P* = a-c
c1b + d2 + d1a - c2 b+d
ad + bc
b+d P * = a - bQ *
P * = c + dQ *. An Example Notice that
a - bQ * = c + dQ *. The demand for ice-cream cones is Now solve for Q *: P = 800 - 2Q D. a - c = bQ * + dQ *
a - c = 1b + d2Q *
b+d To find the equilibrium price, (P* ), substitute for
Q* in either the demand equation or the supply
equation. The supply of ice-cream cones is
P = 200 + 1Q S.
The price of a cone is expressed in cents, and the
quantities are expressed in cones per day.
To find the equilibrium price (P *) and equilibrium
quantity (Q *), substitute Q * for Q D and Q S and P * for
P. That is, Price P * = 800 - 2Q *
P * = 200 + 1Q *.
equilibrium Now solve for Q *:
800 - 2Q * = 200 + 1Q *
600 = 3Q * P* Q * = 200.
Quantity Figure 3 Market equilibrium P * = 800 - 212002
= 400. The equilibrium price is $4 a cone, and the equilibrium quantity is 200 cones per day. 9160335_CH03_p053-080.qxd 76 6/22/09 8:56 AM Page 76 CHAPTER 3 Demand and Supply SUMMARY ◆ Key Points ■ Markets and Prices (p. 54)
■ A competitive market is one that has so many buyers and sellers that no single buyer or seller can
influence the price.
Opportunity cost is a relative price.
Demand and supply determine relative prices. Market Equilibrium (pp. 64–65)
■ ■ Demand (pp. 55–59)
■ ■ ■ Demand is the relationship between the quantity
demanded of a good and its price when all other
influences on buying plans remain the...
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