Practice Questions and Solutions for Linear Equations

Obtained from: http://economics.about.com/od/demand/ss/10_questions.htm

Question 1: If the demand and supply curve for computers are:

QD = 100 - 6P, QS = 28 + 3P

where P is the price of computers, what is the quantity of computers bought and sold at
equilibrium.

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Answer: We know that the equilibrium quantity will be where supply meets, or equals, demand.
So first we'll set supply equal to demand:

100 - 6P = 28 + 3P

If we re-arrange this we get:

72 = 9P

which simplifies to P = 8.

Now we know the equilibrium price, we can solve for the equilibrium quantity by simply
substituting P = 8 into the supply or the demand equation. I'll substitute it into the supply
equation:

QS = 28 + 3*8 = 28 + 24 = 52.

Thus the equilibrium price is 8, and the equilibrium quantity is 52.

Question 2: The quantity demanded of Good Z depends upon the price of Z (Pz), monthly
income (Y), and the price of a related Good W (Pw). Demand for Good Z (Qz) is given by
equation 1 below: Qz = 150 - 8Pz + 2Y - 15Pw

Find the demand equation for Good Z in terms of the price for Z (Pz), when Y is $50 and Pw =
$6.

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Answer: This is a simple substitution question. Substitute those two values into our demand
equation:

Qz = 150 - 8Pz + 2Y - 15Pw

Qz = 150 - 8Pz + 2*50 - 15*6

Qz = 150 - 8Pz + 100 - 90

Simplifying gives us:

Qz = 160 - 8Pz

which is our final answer.

Question 3: Given the following data:

WIDGETS P = 80 - Q (Demand)
P = 20 + 2Q (Supply)

Given the above demand and supply equations for widgets, find the equilibrium price and
quantity.

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Answer: To find the equilibrium quantity, simply set both of these equations equal to each other.

80 - Q = 20 + 2Q

60 = 3Q

Q = 20

Thus our equilibrium quantity is 20. To find the equilibrium price, simply substitute Q = 20 into
one of the equations. We will substitute it into the demand equation:

P = 80 - Q

P = 80 - 20

P = 60

Thus our equilibrium quantity is 20 and our equilibrium price is 60.

Question 4: Given the following data:

WIDGETS P = 80 - Q (Demand)
P = 20 + 2Q (Supply)

Now suppliers must pay a tax of $6 per unit. Find the new equilibrium price-inclusive price and
quantity.

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Answer: Now suppliers do not get the full price when they make a sale - they get $6 less. This
changes our supply curve to: P - 6 = 20 + 2Q (Supply)
P = 26 + 2Q (Supply)

To find the equilibrium price, set the demand and supply equations equal to each other:

80 - Q = 26 + 2Q

54 = 3Q

Q = 18

Thus our equilibrium quantity is 18. To find our equilibrium (tax inclusive) price, we substitute
our equilibrium quantity into one of our equations. I'll substitute it into our demand equation:

P = 80 - Q

P = 80 - 18

P = 62

Thus the equilibrium quantity is 18, the equilibrium price (with tax) is $62, and the equilibrium
price without tax is $56.

Solving in General:

Once you're given a system of linear equations, how do you find solutions? As for most
problems, there are several methods; we choose the one that seems  most appropriate for the
system at hand, and if that doesn't work out, we go on to try another one.

Substitution Method This system is most useful for systems of 2 equations in 2 unknowns.
The essential idea here is that we solve one of the equations for one of the unknowns, and then
substitute the result into the other equation.

Example Consider the system

2x + 3y = 5 
 x +  y  = 5
Solve the second equation for x; this gives x = 5 - y. Then substitute this instead of x into the first
equation and solve the resulting equation for y:
2 ( 5 - y) + 3y = 5
 10 - 2y + 3y = 5
          10 + y = 5
                    y = -5
Going back to the solution for x in the previous equation, we now see that x = 5 - (-5) = 10.
Thus there is a unique solution to this equation and it is (x, y) = (10, -5).

Facts

 It does not matter which equation we choose first and which second. Just choose the most
convenient one first!
  It does not matter which unknown we choose first and which second. Again, just choose
the most convenient one first.

Obtained from: http://www.math.csusb.edu/math110/src/systems/solving.html

Graphing liner equations:

To graph linear equations you may construct a table or you may simply find two points and
connect.

Method 1: Suppose we have the equations given in question 1 which were Q D = 100 - 6P,
QS = 28 + 3P. To graph them we simply calculate a table with appropriate values and then graph
it on a P/Q graph. Recall that P=8 and Q=52 at equilibrium. So, to be safe we will let P vary
from 0 to 16 and find appropriate quantities. Look at the graph and table below:

1. Graphically:

(0,16.67)
S

Equilibrium
PE = 8

Q
E
Q = 52 (0,100)
2. Using a table
P Qd Qs
0 100 28
2 88 34
4 76 40
6 64 46
8 52 5
2
1 40
0 58
1 28
3. End-Point 2 64 Method: Graphing and using individual points
(rather than 1 16 construct at table)
4 70
a. Demand: To graph the demand equation you can solve for two
points. The most frequently used points are when P=0 and when Q=0.
So we can take the equation and solve for both  when Q = 0 the equation reduces to 0=100-6P
We can then re-arrange to 6P = 100 or P = 16.67. These are the points from the graph above.
(0,16.67)

Next we can solve for when P = 0. The equation then reduces to Q = 100. This was also graphed
above at (100, 0). You can graph these two points and then connect them as above.

b. Supply: For supply we can use a similar technique, but note that we can only let Q= 0
or P=0, but not both. To use this technique find out if letting P or Q results in a positive
or negative value of the other variable. We then set the variable (P or Q) equal to zero
that allows the other value to be (+). After that we simply find a level of P or Q that puts
on a similar scale to the demand curve.

So QS = 28 + 3P, let P equal to 0. This gives us a value of Q=28. Note: if we let Q=0 then we
would get a negative price which does not make sense  so given this equation let P=0 and not
Q

We then let P be sufficiently large to allow us to be on similar scale as demand. Recall that price
fluctuates between 0 and 16.67 from the demand curve, so we can allow it be to be up to about 16
here and still be on a scale similar to the demand curve. Lets let P=16 and find out Q S.
Using the equation QS= 28+ 3*16 = 76

So we graph the supply curve with the points (28,0) and (76,16) and connect the points and will
obtain a graph similar to the value above.