Question

Suppose the demand equation for computers by Teetan Ltd for the year 2017 is given
by Qd= 1200-P and the supply equation is given by Qs= 120+3P. Find equilibrium
price and analyse what would be the excess demand or supply if price changes to Rs
400 and Rs 120.

Answer 1

Answer:

(a) Market equilibrium is struck when:

Market Demand = Market supply

Or, Qd=Qs

1000−p=700+2ps

⇒2p+p=1000−700

⇒3p=300

⇒p=100

wHEN $$p=10, { Q }_{ d }=1000-p $$

=1000−100=900

Equilibrium price = 100.

Equilibrium quantity = 900

(b) When price of an input used to produce salt has increased, new equilibrium price and equilibrium quantity is achieved when:

1000−p=400+2p

⇒2p+p=1000−400

⇒3p=600

⇒p=200

When p=200, Qd=1000−p

=1000−200=800

New equilibrium price = 200.

New equilibrium quantity = 800.

Owing to increase in input price, supply curve shifts backward. Consequently, equilibrium price is expected to rise and equilibrium quantity is expected to fall., In tune with this expected result, the new equilibrium price has risen from Rs.100 to Rs.200 and equilibrium quantity has decreased from 900 to800.

(c) When GST is imposed, the supply equation changes as under:

Qd=700+2(p−3) [ out of theprice charged producer has to pay Rs.3 to the government ]

Equating supply and demand equations, the equilibrium price is achieved, as under:

1000−p=700+2(p−3)

⇒1000−p=700+2p−6

⇒2p+p=1000−700+6

⇒3p=306

⇒p=102

Equilibrium quantity:

1000−102=898

OR

700+2(102−3)=700+198

=898

After GST,

Equilibrium price increases from Rs.100 to Rs.102.

Equilibrium quantity reduces from 900 to 898.