Answer to Question #146066 in Economics of Enterprise for Syed Qasim

Question

The lockdown around the world has caused the rapid growth in the electronic market as people have shifted from conventional methods to the new methods for imparting knowledge and staying connected. If demand and supply function are given as:
Qd= 65 – 10P Qs= -35 + 15P
a. Find the equilibrium price and quantity and show it on labeled D/S diagram.
b. How do you interpret market equilibrium: (i) if P= Rs.6? (ii) if P=2?
c. Show on the Demand-Supply diagram in (a), the graphical interpretation of your answer of (b).

Answer 1

a. In equilibrium Qd = Qs, so:

65 – 10P = -35 + 15P,

25P = 100,

P = 4,

Q = 65 - 10×4 = 25 units.

b. (i) if P= Rs.6, then there is a surplus. (ii) if P=2, then there is a shortage.

c. The graphical interpretation of my answer of (b) is a price above equilibrium level in (i) and the price below equilibrium level in (ii).