Suppose the demand and supply curves of a Commodity-X is given by the following two equations simultaneously: Qd: 200 - P Qs,=50+2p
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.
1 Answers
(i) We know that the equilibrium price and quantity are achieved at;
Qd=Qs,
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;
Qd=Qs
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.