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Consider the following demand and supply function of the commodity : Q^(D)=160=2P" ,"Q^(S)=-40+2P (i) Find equilibrium price. (ii) Find equilibrium quantity. (iii) Which situation arises when market price is Rs.30 ? (iv) Which situation arises when market price is Rs.60 ?

Answer» <html><body><p></p>Solution :Equilibrium <a href="https://interviewquestions.tuteehub.com/tag/price-1165141" style="font-weight:bold;" target="_blank" title="Click to know more about PRICE">PRICE</a> is determined at that point where market demand is equal to market supply i.e., <br/> `Q^(D)=Q^(S)` <br/> `160-2P=-<a href="https://interviewquestions.tuteehub.com/tag/40-314386" style="font-weight:bold;" target="_blank" title="Click to know more about 40">40</a>+2P` <br/> `-4P=-40-160` <br/> `P=(-120)/(-4)` <br/> P = 50 <br/> `therefore` Equilibrium price is Rs.50. <br/> (<a href="https://interviewquestions.tuteehub.com/tag/ii-1036832" style="font-weight:bold;" target="_blank" title="Click to know more about II">II</a>) The equilibrium <a href="https://interviewquestions.tuteehub.com/tag/quantity-1174212" style="font-weight:bold;" target="_blank" title="Click to know more about QUANTITY">QUANTITY</a> is calculated by substituting the equilibrium price into either demand or supply function since at equilibrium, quantity demandedand quantity supplied are equal. <br/> `Q^(D)=160-2P=160-2(50)=160-100=60" units"` <br/> `Q^(S)=-40+2P=-40+2(50)=-40+100=60" units"` <br/> (iii) When market price is Rs.<a href="https://interviewquestions.tuteehub.com/tag/30-304807" style="font-weight:bold;" target="_blank" title="Click to know more about 30">30</a>, then <br/> `Q^(D)=160-2P=160-2(30)=100"units"` <br/> `Q^(S)=-40+2P=-40+2(30)=20"units"` <br/> `Q^(D)gtQ^(S)` <br/> `100gt20` <br/> This is a situation of excess demand or shortage of supplyy, because `Q^(S)gtQ^(S)`. <br/> (iv) When market price is Rs.60, then <br/> `Q^(D)=160-2P=160-2(60)="40 units"` <br/> `Q^(S)=-40+2P=-40+2(60)="80 units"` <br/> `Q^(D)ltQ^(S)` <br/> `40lt80` <br/> This is a situation ofsupply or surplus because `Q^(D)ltQ^(S)`.</body></html>


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