How to Calculate Equilibrium Price

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Equilibrium price is the spot on the y-axis where demand and supply intersect on a graph. The simplest way to find equilibrium price is to graph supply and demand, then find where they interest. It is possible to find equilibrium price using algebra based off the equation "y = m (x) + b" (in which "m" is the slope and "b" is the y-intercept).

Things You'll Need

  • supply and demand statistics
  • graphing program or graph paper
  • Determine the supply equation. Since y = m (x) + b, replace "m" with the slope of the supply curve and replace "b" with the y-intercept of the supply curve. For instance, a supply curve has a slope of 3 and intercepts the y-axis at 6. The formula then is Quantity Supplied = 3 (x) + 6.

  • Determine the demand equation. Since y = m (x) + b, replace "m" with the slope of the demand curve and replace "b" with the y-intercept of the supply curve. Demand curves are downward sloping, so the slope will be a negative number. For example, a demand curve has a slope of 4 and intercepts the y-axis at 15. The formula then is Quantity Demanded = 15 - 4 (x).

  • Set quantity demanded to equal quantity supplied. In our example, 6 + 3 (x) = 15 - 4 (x).

  • Use algebra to solve for "x". In our example, "x" equals $1.2857. Thus, the rounded equilibrium price is $1.29.

References

  • Photo Credit cash image by Alexey Klementiev from Fotolia.com
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