Market Equilibrium
At its core, microeconomics relies on setting a demand function equal to a supply function to find clearing prices.
Linear Functions
Assume Demand: Qd = 100 - 2P and Supply: Qs = 20 + 3P.
Setting them equal: 100 - 2P = 20 + 3P → 80 = 5P → P* = 16.
Substituting back yields Q* = 68.
Deadweight Loss
When price floors (e.g., minimum wage) or ceilings (e.g., rent control) are instituted, the market cannot reach P*. This inefficiency creates a triangular loss of total surplus, calculated via basic geometry: 0.5 * base * height.