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In economics, supply and demand tells us how much people will buy and at what price. But what about when you want to find the exact point when supply equals demand? The equilibrium quantity tells us where that exact point is. In this article, we’ll walk you through the simple linear equations you need to know in order to find equilibrium price and quantity in just a few minutes.
Things You Should Know
- Plug your numbers into the supply and demand equations:
- Qs = x + yP
- Qd = x - yP
- Use Qd = Qs to find the equilibrium price.
- Plug the price, or P, into either the supply equation or the demand equation to solve for equilibrium quantity.
1 1 of 6:Plug your numbers into the supply function.
- The supply equation is .
is the units supplied, and is the quantity, or amount, of units. represents the price of each unit (typically in dollars). Look at your problem and plug in your numbers for the supply equation.XResearch source
- For instance, let’s say that you are calculating the equilibrium quantity of calculators. The price of each calculator, or unit, is $5 (). At $5, the supplier can supply 2 calculators (). Therefore, your equation would be
2 2 of 6:Insert the demand into the demand function.
- The demand equation is .
is the number of demanded units. In this equation, is the quantity and is still the price of your unit in dollars. Take a look at your problem and plug in the numbers to the demand function.XResearch source
- Continuing our example from above, let’s say that the price of a calculator is $2 (), and the demand for a calculator at that price is 16 (). The demand equation would be .
3 3 of 6:Set the 2 quantities as equal in price.
- Use to find the equilibrium. Picture your supply and demand plotted on a graph. The equilibrium point would be when the 2 lines cross over each other in the center of the graph. In order to find that point, we need to assume that the supply equals the demand, or that . Plug your numbers into the equation.XResearch source
- Our new equation would look like this: .
4 4 of 6:Isolate the variable to solve the equation.
- Solve the equation to find the equilibrium price. To isolate the variable, add the price () to both sides. Then, subtract the quantity () from both sides. For example:XResearch source
5 5 of 6:Simplify the equation by dividing both sides.
6 6 of 6:Insert the P value and solve to find the equilibrium quantity.
- Plug the equilibrium price into the equation and solve. You can choose either the demand equation or the supply equation (since both are equal, they will both give you the same answer). In the example below, we will use the demand equation, which is .XResearch source Take the price, P, (which we now know is $2), and plug it into the equation.
- You now know that the equilibrium quantity is 12, which means that at $2 per calculator, consumers will purchase 12 of them.
- To use the supply equation, your answer would be: