Answer to Question #146086 in Economics of Enterprise for Syed Qasim

Question

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).