Economics, 3rd Edition

The Algebra of Market Equilibrium

We know that in equilibrium, demand equals supply (D

= S

 

). To find the market equilibrium, therefore, we 

set the demand and supply equations equal to each other and solve for P  and Q by substitution.

Finding Market Equilibrium – The Substitution Method 

Take the following demand and supply equations 

assuming all positive quantities are greater than 20:

Qd = 32 − 3p

Qs = 20 + 4p

We know that in equilibrium:

Qd = Qs

So, equilibrium in this market will be where:

32

− 3p = 20 + 4p

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60  PART 2  SUPPLY AND DEMAND: HOW MARKETS WORK

This now allows us to solve for P  and so find the equilibrium price: