The supply and demand functions are given: Q (d) = 25-P, Q (S) = -15 + 3P.

The supply and demand functions are given: Q (d) = 25-P, Q (S) = -15 + 3P. Determine: a) market equilibrium parameters b) excess demand at P = 5 and excess supply at P = 15.

a) Market equilibrium occurs when the supply and demand functions are equal, for this we compose the identity:
Q (d) = Q (S)
25 – P = -15 + 3P
25 + 15 = 4P
40 = 4P
P = 10
We will take into account the price in conventional units.
At a price of P = 10 conventional units. the market equilibrates.

b) At a price P = 5 conv. units find excess demand.
The demand at the equilibrium price is: Q1 (d) = 25 – P = 25 – 10 = 15 units. goods.
The demand at a reduced price is: Q2 (d) = 25 – 5 = 25 – 5 = 20 units. goods.
Excess demand will be: Q2 (d) – Q1 (d) = 20 – 15 = 5 units.
At a price P = 15 conv. units find an excess supply.
Supply at an equilibrium price: Q1 (S) = -15 + 3P = -15 + 3 * 10 = 15 units. goods.
Offer at a high price: Q2 (S) = -15 + 3P = – 15 + 3 * 15 = 30 units. goods.
The excess supply will be: Q2 (S) – Q1 (S) = 30 – 15 = 15 units.