Question

Qd= 300-20P Qs= -100+20P
a. Find the equilibrium quantity and price and illustrate the same on a graph. Also, explain if it is static or comparative equilibrium.
b. Suppose the price is fixed at Rs. 5, now find if the market is in equilibrium or not? Illustrate it graphically also and explain about the demand and supply.
c. Suppose the price is fixed at Rs. 15, now find if the market is in equilibrium or not? Illustrate it graphically also and explain about the demand and supply.
d. Suppose the good in question is normal explain the effect of increase in the consumer income on the equilibrium. Also, explain if it is static or comparative equilibrium with the reference to your answer in part a. (Hint: Take a hypothetic point to find the new equilibrium and explain what would happen to price and quantity)​

Answer 1

Explanation:

Qd = 300-20p , Qs = -100+20p

a.

Qd= 300-2p Qs = -100+20p

Qd=Qs ----------------------(1)

using (1) we get,

300-20p = -100+20p

300+100 = 20p +20p

400=40p

p = 10

now we find equilibrium quantity

300-20p = 300-20×10 = 100

equilibrium quantity and price is 100 and 10 respectively.

b.

When price is 5

Qd = Qs

300-20p = -100+20p

300-20×5 = -100+20×5

300-100 = -100+100

200 = 0

Price 5 is not a equilibrium price

C.

When price is 15

300-20p = -100+20p

300-20×15 = -100+20×15

300-300 = -100+300

0 = 200

price 15 is not a equilibrium price.

Thank you