Answer to Question #147569 in Economics of Enterprise for muhammad ammar khan

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.

Equilibrium price is defined as the price which makes the demanded quantity equal to supplied quantity and it happens when demand and supply curves intersect.

$Qd=65-10P\newline Qs=-35+15P$

Equate both equations

$Qd=65-10P=-35+15P=Qs$

Put like terms together

$65+35=15P+10P\newline 100=25P\newline Divide\ both\ sides\ by\ 25\newline \dfrac{100}{25}=P$

$P=4$

Therefore equilibrium price is 4

b.(i)

If P is Rs.6

Since P=Rs.6 is above the equilibrium price(4), it means that there exists a surplus which leads to a decrease in prices of goods

b.(ii)

If P is 2

Since P=2 is is below the equilibrium price (4),it means that there exists a shortage and this leads to an increase in price.