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4) Plug your equilibrium price into either your demand or supply function (or both) and solve for Q, which will give you
equilibrium quantity.
When solving for equilibrium price and quantity, you need to have a demand function, and a supply function.
Sometimes you will be given an inverse demand function (ie. P = 5 Q) in this case you need to solve for Q as a
function of P. Once you have both your supply and demand function, you simply need to set quantity demanded
For example, if your monthly quantity demand function for a product is Qd = 10,000-80P, and your monthly quantity
supply function for a product is Qs=20P, then set Qd=Qs and solve.
Qd=Qs -or-
100 = P
Which is our equilibrium price. Now to find equilibrium quantity we can plug our equilibrium price (100) into either our
Qs = 20*100 = 2,000
Luckily, our quantity supplied equaled our quantity demanded so we know that we did it right.
So the steps are:
2) Set Qs equal to Qd
4) Plug your P back into your Qs and Qd functions to get equilibrium quantity
Whats going on behind the scenes? The reason we set Qs equal to Qd is because we know that in equilibrium they
must be equal. Since supply and demand will only cross at one point, we know that when Qs = Qd that we are at
equilibrium. We can use this information to solve for equilibrium price even though we dont know what Qd and Qs
are! Once we do have equilibrium price, we can use this information to back out what Qs and Qd are.
Another example:
Suppose that demand is given by the equation QD=500 50P, where QD is quantity demanded, and P is the price of
the good. Supply is described by the equation QS= 50 + 25P where QS is quantity supplied. What is the equilibrium
So here we get:
Qd=Qs=500-50P=50+25P
or (subtract 50 from both sides, and add 50P to both sides to get)
450=75P
500-50(6) = 200
and
50+25(6) = 200