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Equilibrium price

A point at which the demand equals the supply is called equilibrium. At equilibrium situation there is no impact on price. When a demand and supply quantities are drafted on graph, the point where the both the curves meet is called equilibrium price or market clearing price.
 
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In the fig. above, the point E is the equilibrium price.

 

Example

If quantity demand is Qd = 100 – 3P and Qs = 2P – 20, find out equilibrium price and quantity.

Equilibrium means Demand = Supply
100-3P = 2P-20
100+20 = 2P + 3P
120 = 5 P
P = 120/5
Price = 24

At this price quantity demand will be Qd = 100- 3P

= 100 – 3 X 24
= 100 – 72
= 28
 

At this price quantity supplied will be Qs = 2P – 20

= 2 X 24 – 20
= 48 – 20
= 28
 





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