This Equilibrium Price and Quantity Calculator can help you calculate both the equilibrium price & quantity in case you have a demand and a supply function both dependants on price.
Understanding economic equilibrium
In economics, the equilibrium price represents the price that if practiced on the market will result in the fact that the whole quantity that is supplied is presumably sold, meaning that on the market the economic forces named generally as the supply and demand are balanced and that there are no external influences that may have an impact on the price mechanism.
And so, theoretically the equilibrium is a situation that occurs on the market whenever the quantity demanded equals the quantity supplied, and when the market price is established through competition only while assuming that there are no other factors involved that are at the discretion/in the control of a party or another (supply or demand or another influential factor).
According to Huw Dixon there are three properties of the economic equilibrium:
- The behavior of agents is consistent.
- No agent has an incentive to change its behavior.
- Equilibrium is the outcome of some dynamic process (stability).
Source: Dixon, H. (1990). "Equilibrium and Explanation". In Creedy. The Foundations of Economic Thought. Blackwells. pp. 356–394.
How does this equilibrium price and quantity calculator work?
The tool was designed to help you calculate the equilibrium price and quantity for any linear quantity and supply functions, both dependants on the price written as:
Quantity demanded (Qd): = a + bP
Quantity demanded (Qd): = c + dP
Where "P" refers to the equilibrium price.
The algorithm behind this equilibrium price and quantity calculator consists in the following steps, while it requires you to solve and know in advance both the quantity and supply functions:
1) Consider Qd (quantity demanded) equal to Qs (quantity supplied).
2) Find the P (unknown variable) from the above linear equation which is the Equilibrium Price.
3) Once the equilibrium price is clear, plug it into either the demand or supply function in order to determine the Equilibrium Quantity on the market (Q).