Suppose the demand and supply curves of a Commodity-X is given by the

1.	Suppose the demand and supply curves of a Commodity-X is given by the following two equations simultaneously: Qd: 200 - P Qs,=50+2p(i) Find the equilibrium price and equilibrium quantity. (ii) Suppose that the price of a factor of production producing the commodity has changed, resulting in the new supply curve given by the equation Qs'=80+2p Analyse the new equilibrium price and new equilibrium quantity as against the original equilibrium price and equilibrium quantity.
Answer» (i) We know that the equilibrium price and quantity are achieved at; Q_d=Q_s, 200-P = 50 + 2P (-) 3p = (-) 150 Therefore, Equilibrium Price p = 50 And, Equilibrium Quantity q = 200 - 50 = 150 units (ii) If the price of factor of production has changed, then under the new conditions; Q_d=Q_s 200-P=80+2P (-)3p = (-)120 Therefore, Equilibrium Price p = 40 And, Equilibrium Quantity q = 200 - 40 = 160 units Thus, as the equilibrium price is decreasing the equilibrium quantity is increased.

Suppose the demand and supply curves of a Commodity-X is given by the following two equations simultaneously: Qd: 200 - P Qs,=50+2p(i) Find the equilibrium price and equilibrium quantity. (ii) Suppose that the price of a factor of production producing the commodity has changed, resulting in the new supply curve given by the equation Qs'=80+2p Analyse the new equilibrium price and new equilibrium quantity as against the original equilibrium price and equilibrium quantity.

Answer»

(i) We know that the equilibrium price and quantity are achieved at;

Q_d=Q_s,

200-P = 50 + 2P

(-) 3p = (-) 150

Therefore, Equilibrium Price p = 50

And, Equilibrium Quantity q = 200 - 50 = 150 units

(ii) If the price of factor of production has changed, then under the new conditions;

Q_d=Q_s

200-P=80+2P

(-)3p = (-)120

Therefore, Equilibrium Price p = 40

And, Equilibrium Quantity q = 200 - 40 = 160 units

Thus, as the equilibrium price is decreasing the equilibrium quantity is increased.