SOLVING SIMULTANEUS LINEAR

EQUATIONS. MARKET
EQUILIBRIUM.
SESSION 4
By Elvira Hernández Benito
SESSION PLANING

 Follow Solving Simultaneous Linear Equations explanation.

 Read carefully every step of solving process.
 Do the exercise proposed and send it in detail to the professor by mail (it will worth 0,75
points of Assignment grade).

 Follow Market Equilibrium explanation.

 Read carefully every step of solving process.
 Do the exercise proposed and send it in detail to the professor by mail (it will worth 0,75
points of Assignment grade).

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
SOLVING SIMULTANEOUS LINEAR
EQUATIONS.
Definition: In many applications, both practical and theorical, there will be several equations with several

variables or unknowns. These are usually referred as simultaneous equations.

The solution of a set of simultaneous equations is the value of “x” and “y” which satisfy all equations.

Calculation: we only study systems with 2 equations and two variables at the moment. And then:

a) To solve the equations algebraically (there are different methods), eliminate all but one variable, solve for this

variable and then solve for the other.

b) To solve the equations graphically, plot the graphs. The solution is given by the coordinates of the point of

intersection of the graphs.

Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
a) How to solve algebraically:

The equations are

x + 3y = 4 …(1)
-x + 2y = 6 …(2)

0 +5y = 10 Add equations (1) and (2) to eliminate x.

y = 10/5 = 2 Solving for y.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
Now we know the value of y
y=2
Substitute y = 2 into either (1) or (2) and solve for x.
Solution
x + 3y =4 …(1) x = -2
x + 3(2) = 4 y=2

x+ 6 =4
x =4–6=-2
x = -2

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
b) To show the solution graphically:

Plot the two graphs on the same diagram.

x + 3y = 4 …(1) Each equation

-x + 2y = 6 …(2) represents a straight line

Rearrange: y = mx + c
Line (1)
y = -1/3 x + 4/3 …(1) cuts the y-axis at y = 4/3.
cuts the x-axis at x = 4.

y = 1/2 x + 3 …(2) Line (2) y = 1/2 x + 3

cuts the y-axis at y = 3.
cuts the x-axis at x = -6.
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
Check the solution (x = -2, y = 2)

Substitute x = -2, y = 2 into each equation

x + 3y = 4 …(1)
(-2) + 3(2) = 4 In each case the
-2 + 6 = 4 LSH = RHS
4 = 4

-x + 2y = 6 …(2)
- (-2) + 2(2) = 6
We say
2 +4 =6 ‘x = -2, y = 2 satisfies
6=6 both equations’

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EXERCISE TO SOLVE AND SEND
Solve the following simultaneous equations:
 
a) 5x – 2y = 11
3x + 3y = 15
 
b) 5 + 2P = 6Q
5P + 8Q = 25

c) 3(x – 16) + y = 0
(5y + 10x)/5 = 20
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
 MARKET EQUILIBRIUM.

The method of simultaneous equations is now applied to the determination of equilibrium conditions in several markets
such as, the goods, labour and money markets.

A state of equilibrium within a model is a situation characterised by a lack of tendency to change.

Equilibrium in the goods and labour markets:

A) GOODS MARKET EQUILIBRIUM: known as “market equilibrium” occurs when the quantity demanded by
consumers and the quantity supplied by producers of a good or service are equal. Equivalently, market equilibrium
occurs when the price that a consumer is willing to pay is equal to the price that a producer is willing to accept. The
equilibrium condition, therefore, is expressed as:

Qd = Qs and Pd = Ps
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
B) LABOUR MARKET EQUILIBRIUM: occurs when the labour demanded by firms is equal to the labour supplied
by workers or, equivalently, when the wage that a firm is willing to offer is equal to the wage that workers are willing to
accept. Labour market equilibrium, therefore, is expressed as:

Ld = Ls and Wd = Ws

Where:

Wd = a – bLd A negative relationship between the number of labour units and the wage rate (price per unit)

Ws = c + dLs A positive relationship between the number of labour units and the wage rate (price per unit)

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EQUILIBRIUM MARKET EXAMPLE.

Calculate the equilibrium price and quantity:

Demand function: P = 100 - 0.5Q …(1)
Supply function: P = 10 + 0.5Q …(2)

Equilibrium in the Goods Market

when
Qd = Qs and Pd = Ps

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
Equate prices
In this example it is easier to equate prices, because
Pd = P s the demand and supply functions are given in the
form P = f(Q)
100 – 0.5Q = 10 + 0.5Q

Now we know the equilibrium quantity

Qe = 90

Equilibrium
Substitute Q = 90 into either (1) or (2) and solve for Q Q = 90
P = 55
P = 100 - 0.5Q …(1) Demand function
P = 100 - 0.5(90)
P = 100 – 45 Pe = 55
P = 55
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
Graphically:
1. Graph the demand function: P = 100 - 0.5Q

2. Graph the supply function: P = 10 + 0.5Q

3. Read off the point of intersection

Demand

Pe E Market equilibrium
Goods market equilibrium

Supply
0 Q
0 Q e

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EXERCISE TO SOLVE AND SEND

The demand and supply functions for a product are given by the equations:

Demand function: Pd = 400 – 5Q

Supply function: Ps = 3Q + 24
 
a) Calculate the equilibrium price and quantity.
b) Plot the graphs of the demand and supply functions, hence to confirm the answer in a).

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21