![]() ![]() We can set the demand and supply equations equal to each other: We now have a system of three equations and three unknowns (Qd, Qs, and P), which we can solve with algebra. Since Finally, recall that the soda market converges to the point where supply equals demand, or (Remember, these are simple equations for lines). Where Qs is the amount of soda that producers will supply (i.e., quantity supplied). Where Qd is the amount of soda that consumers want to buy (i.e., quantity demanded), and P is the price of soda. Suppose that the demand for soda is given by the following equation: Later, you’ll learn why these models work the way they do, but let’s start by focusing on solving the equations. Right now, we are only going to focus on the math. Let’s practice solving a few equations that you will see later in the course. ![]() We can also identify the equilibrium with a little algebra if we have equations for the supply and demand curves. ![]() We’ve just explained two ways of finding a market equilibrium: by looking at a table showing the quantity demanded and supplied at different prices, and by looking at a graph of demand and supply. If you have only the demand and supply schedules, and no graph, then you can find the equilibrium by looking for the price level on the tables where the quantity demanded and the quantity supplied are equal (see the numbers in bold in Table 1 in the previous page that indicates this point). It should be clear, from the previous discussions of surpluses and shortages, that if a market is not in equilibrium, then market forces will push the market to the equilibrium. ![]() At any other price, the quantity demanded does not equal the quantity supplied, so the market is not in equilibrium at that price. This mutually desired amount is called the equilibrium quantity. The equilibrium price is the only price where the desires of consumers and the desires of producers agree-that is, where the amount of the product that consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied). On a graph, the point where the supply curve (S) and the demand curve (D) intersect is the equilibrium. When two lines on a diagram cross, this intersection usually means something. Equilibrium: Where Supply and Demand Intersect ![]()
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