The equilibrium values themselves are not entirely arbitrary. The graph is drawn with the assumption that the following equations describe this market:
Demand | P = 10 - 0.9Qd |
Supply | P = 0.5 + 0.5Qs |
If we set Qd = Qs, and replace each of these variables
with Q, then we have two equations (Demand and Supply) and two unknown
variables (P and Q). In other words, we can "solve" for P* and Q*.
Setting the equations equal to one another, and solving for Q, we have:
Plugging Q* into either equation, we obtain the equilibrium price: