Supply and Demand Equilibrium
Find the equilibrium price and quantity where supply equals demand.
The foundation of market economics.
The Formula
At equilibrium: Q_d = Q_s (set demand equal to supply and solve)
Market equilibrium occurs where the quantity demanded equals the quantity supplied. At this point, there is no shortage or surplus — the market clears naturally.
Variables
| Symbol | Meaning |
|---|---|
| Q_d | Quantity demanded (typically: Q_d = a - bP) |
| Q_s | Quantity supplied (typically: Q_s = c + dP) |
| P | Price per unit |
| a, b, c, d | Constants specific to the market |
Example 1
Demand: Q_d = 100 - 2P. Supply: Q_s = 20 + 3P. Find equilibrium.
Set Q_d = Q_s: 100 - 2P = 20 + 3P
80 = 5P
P = 16
Q = 100 - 2(16) = 68
Equilibrium: Price = $16, Quantity = 68 units
Example 2
Demand: Q_d = 50 - P. Supply: Q_s = -10 + 2P. Find equilibrium.
50 - P = -10 + 2P
60 = 3P → P = 20
Q = 50 - 20 = 30
Equilibrium: Price = $20, Quantity = 30 units
When to Use It
Use the equilibrium formula when:
- Finding the natural market price for a product
- Analyzing the effect of taxes or subsidies on markets
- Predicting how supply or demand shifts affect prices
- Understanding market clearing in competitive markets