Calculating The Equilibrium Price:

The case scenario below will provide you with the ability to practice calculating
the equilibrium price of a given market.

You are a research associate in the Economics department at a large,

multinational bank. You have been assigned the task to study the relationship
between the supply and demand of the pork belly market in Kazakhstan.
Although very little research has been done to date on the market, your
colleagues have performed extensive interviews with various market
participants and have determined the following equations for supply and
demand.

Variables:

 Qs stands for quantity supplied

 Qd stands for quantity demanded
 P stands for price.

Equations:

Qs = 128 + 8P

Qd = 478 - 6P

Required:

 Calculate the equilibrium price for the pork belly market in Kazakhstan by
using the supply and demand equations above. Show all necessary steps
to solve for P.
 Do a quality check and put your answer back into the supply and demand
equations to see that it is correct.

Solution:
We need to make the quantity supplied equal to the quantity demanded in order to determine the
equilibrium price.
Qs = Qd
128 + 8P= 478 - 6P
128 + 8P +6P= 478
8P +6P= 478 -128
14P = 478 -128
14P = 478 -128
14P=350
P = 350/14
P=$25
At the price of $25, the supply and demand curves will intersect. Therefore the equilibrium price
is $25.
Quality check:
128 + 8 (25) = 478 - 6 (25)
328 = 328 so the answer checks out.

The equilibrium point is the point where the supply and demand
curves intersect. The point reveals the optimum price and quantity. It
is calculated by solving equations for quantity demanded and quantity
supplied (a – bP = x + yP). The point reveals the optimum price and
quantity.