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Computation of Equilibrium Market Demand and Market Supply

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Assume that the market demand and the market supply are governed by the following equations:
Qd=80-4P
Qs=6P

(i) Is the demand consistent with the law of demand?
(II) Is the supply consistent with the law of supply?
(iii) What would be the equilibrium price and quantity in this market?

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Solution Summary

The solution shows a mathematical computation of the demand, supply, and equilibrium price.

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(i) Is the demand consistent with the law of demand?
Yes. To test this, I have the hypothetical price levels below using the equation Qd=80-4P:

Price Qd Computation
2 72 (Qd=80-4p) = 80 - 4(2) = 72
4 64 (Qd=80-4p) = 80 - 4(4) = 64
6 56 (Qd=80-4p) = 80 - 4(6) = 56
8 48 (Qd=80-4p) = 80 - 4(8) = 48
10 40 (Qd=80-4p) = 80 - 4(10) = 40
12 32 (Qd=80-4p) = 80 - 4(12) = 32

It will be noticed that the computed Qd goes down when the price goes up, and vice versa. The law of demand states ...

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