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 ?

Consider the following demand and supply function of the commodity :

1.	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» Solution :Equilibrium PRICE is determined at that point where market demand is equal to market supply i.e., `Q^(D)=Q^(S)` `160-2P=-40+2P` `-4P=-40-160` `P=(-120)/(-4)` P = 50 `therefore` Equilibrium price is Rs.50. (II) The equilibrium QUANTITY is calculated by substituting the equilibrium price into either demand or supply function since at equilibrium, quantity demandedand quantity supplied are equal. `Q^(D)=160-2P=160-2(50)=160-100=60" units"` `Q^(S)=-40+2P=-40+2(50)=-40+100=60" units"` (iii) When market price is Rs.30, then `Q^(D)=160-2P=160-2(30)=100"units"` `Q^(S)=-40+2P=-40+2(30)=20"units"` `Q^(D)gtQ^(S)` `100gt20` This is a situation of excess demand or shortage of supplyy, because `Q^(S)gtQ^(S)`. (iv) When market price is Rs.60, then `Q^(D)=160-2P=160-2(60)="40 units"` `Q^(S)=-40+2P=-40+2(60)="80 units"` `Q^(D)ltQ^(S)` `40lt80` This is a situation ofsupply or surplus because `Q^(D)ltQ^(S)`.