Determinants of Equilibrium Price, Quantity And Point With Simple Applications - SS1 Economics Lesson Note

Determinants of equilibrium price, quantity, and point refer to the factors that influence the market price and quantity of a product that reaches a balance between supply and demand. For instance, if there is a sudden increase in demand for a particular product, the price of the product may rise, and producers may increase their supply to meet the demand. Similarly, if the production cost of a product decreases, it can result in an increase in the supply of the product, leading to a decrease in price. Some common determinants of equilibrium price and quantity are:

• Market demand: The amount of a product that consumers are willing and able to buy at different prices.

• Market supply: The amount of a product that producers are willing and able to sell at different prices.

• Production costs: The cost of producing a product, which can affect the price and quantity of supply.

• Technology: The level of technology available to produce a product can affect its production costs and supply.

• Competition: The level of competition in a market can affect both the price and quantity of supply and demand.

Word problem:

 If Qd is quantity demanded, Qs is quantity supplied and p is price, find equilibrium level of quantity and price given the equations below:

Qd = 40 - 5p

Qs = 24 + 3p

Solution:

To find the equilibrium level of quantity and price given the equations below:

Qd = 40 - 5p

Qs = 24 + 3p

We can equate Qd and Qs to find the equilibrium quantity:

40 - 5p = 24 + 3p

40 - 24 = 5p + 3p

16 = 8p

p = 2

Substituting p = 2 into either Qd or Qs equation, we get:

Qd = 40 - 5(2) = 30

Qs = 24 + 3(2) = 30

Therefore, the equilibrium quantity is 30, and the equilibrium price is 2.