Question

Given market demand Qd = 50 - P, and market supply P = Qs + 5

A) Find the market equilibrium price and quantity?

B) What would be the state of the market if market price was fixed at Birr 25 per unit?

C) Calculate and interpret price elasticity of demand at the equilibrium point.

Answer 1

Given:

Market demand Qd = 50 - P, and market supply P = Qs + 5

To find:

Market equilibrium price and quantity

Explanation:

A) Market equilibrium price  

Qd=50-p

P=Qs+5, Qs= -5+p,

Therefore, Qs=Qd,  

50-p= -5+p

50+5= p+p

55=2p

$\frac{55}{2}$=p

27.5=p

Quantity :

Qd(Quantity demanded)= 50-p,  

Qd=50-27.5

Qd=22.5

Qs(Quantity supplied)= -5+p,

Qs= -5+27.5

Qs=22.5