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## Eco402 Assignment Solution

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## VU Assignments All Subjects

EQUILIBRIUM
Equilibrium is a state in which there are no shortages and surpluses; in other words the quantity
demanded is equal to the quantity supplied.
Equilibrium price is the price prevailing at the point of intersection of the demand and supply curves; in
other words, it is the price at which the quantity demanded is equal to the quantity supplied.
Equilibrium quantity is the quantity that clears the market; in other words, it is it is the quantity at which
the quantity demand is equal to the quantity supplied.
ALGEBRAIC REPRESENTATION OF EQUILIBRIUM
If we have following demand and supply function
Qd = 100 – 10 P
Qs = 40 + 20 P
Supply Curve
Quantity (Q)
Price (P) Demand Curve
Qd = Qs

In equilibrium,
Qd = Qs
Therefore,
100 - 10P = 40 + 20P
20P + 10P = 100 - 40
30P = 60
P = 60/30
P = 2
Putting the value of price in any of demand and supply equation,
Q = 100 – 10x2 (or 40 + 20x2)
Q = 100 – 20
Q = 80
The equilibrium price is 2 and the equilibrium quantity is 80