Question

Price	Quantity Supplied	Quantity Demanded
8	50	20
7	40	25
6	30	30
5	20	35
4	10	40

Draw the supply curve and demand curve independently in a separate graph.

Write the demand equation and the supply equation.

Combine both curves in one graph and show the equilibrium price and quantity.

What is the quantity demanded when the price is $10?

Is there a shortage or surplus when the price equals $8? What about $4?

Answer 1

the equation of the supply line

P=mQs+ a

M=(P2-P1)/(Q2-Q1)

=(7-8)/(40-50)

=-1/-10

=0.1

P1=8 and Qs1=50

P=mQs+ a

8=0.1*50+a

8=5.0+a

8-5=a

a=3

Hence the supply equation will be

P=3+0.1Qs

the equation of the demand line

P=-mQs+ a

M=(P2-P1)/(Q2-Q1)

=(7-8)/(25-20)

=-1/5

=-0.2

P1=8 and Qd1=20

P=mQd+ a

8=-0.2*20+a

8=4.0+a

8+4=a

a=12

Hence the demand equation will be

P=12-0.2Qd

As it can be seen in the graph, that the equilibrium price is $6 and equilibrium quantity is 30 units where demand and supply curve intersects.

the quantity demanded when the price is $10

P=12-0.2Qd

10=12-0.2Qd

0.2Qd=12-10

0.2Qd=2

Qd=2/0.2

Qd=10

When price is $8, then there will be surplus because quantity supply is greater than quantity demand.

When price is $4, then there will be shortage because quantity supply is less than quantity demand.