How To Determine The Equilibrium Price And Equilibrium Volume

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How To Determine The Equilibrium Price And Equilibrium Volume
How To Determine The Equilibrium Price And Equilibrium Volume

Video: How To Determine The Equilibrium Price And Equilibrium Volume

Video: How To Determine The Equilibrium Price And Equilibrium Volume
Video: Solving for equilibrium price and quantity mathematically 2024, March
Anonim

We all know what the market is. Each of us makes purchases every day. From minor ones - buying a ticket on the bus, to large-scale ones - buying houses, apartments, renting land. Whatever the structure of the market: commodity, stock - all its internal mechanisms are essentially the same, but nevertheless require special attention, since a person cannot do without market relations.

How to determine the equilibrium price and equilibrium volume
How to determine the equilibrium price and equilibrium volume

Instructions

Step 1

To find the equilibrium price and equilibrium volume, a number of factors must be identified. Such as the amount of demand and the amount of supply. It is these market mechanisms that affect the equilibrium. There are also various market structures: monopoly, oligopoly and competition. In monopoly and oligopoly markets, the equilibrium price and volume should not be calculated. In fact, there is no balance there. The monopoly firm itself sets the price and volume of products. There are several firms in an oligopoly, uniting in a cartel in the same way as monopolists control these factors. But in competition, everything happens according to the rule of the "Invisible Hand" (through supply and demand).

Step 2

Demand is a customer's need for a product or service. It is inversely proportional to price and therefore the demand curve has a negative slope on the chart. In other words, the buyer always wants to buy a larger volume of products at a lower price.

Step 3

The number of goods and services that sellers are ready to put on the market is an offer. Unlike demand, it is directly proportional to price and has a positive slope on the chart. In other words, sellers tend to sell more items at a higher price.

Step 4

It is the point of intersection of supply and demand on the chart that is interpreted as equilibrium. What demand and what supply in problems are described by functions in which there are two variables. One of them is the price, the other is the volume of production. For example: P = 16 + 9Q (P - price, Q - volume). To find the equilibrium price, two functions should be equated - supply and demand. Having found the equilibrium price, you need to substitute it into any of the formulas and calculate Q, that is, the equilibrium volume. This principle works in the opposite direction: first, the volume is calculated, then the price.

Step 5

Example: It is necessary to determine the equilibrium price and equilibrium volume if it is known that the amount of demand and supply is described by the functions: 3P = 10 + 2Q and P = 8Q-1, respectively.

Decision:

1) 10 + 2Q = 8Q-1

2) 2Q-8Q = -1-10

3) -6Q = -9

4) Q = 1.5 (this is the equilibrium volume)

5) 3P = 10 + 2 * 1.5

6) 3P = 13

7) P = 4.333

Done.

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