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

At equilibrium price, the quantity demanded is equals to the quantity supplied to the market.

This implies that Demand=Supply,

Qd=QsQd=Qs

1200-P = 120+3P1200−P=120+3P

Solving the above

4P = 10804P=1080

Hence Equilibrium price

P = Rs 270P=Rs270

When price Rises to Rs 400

Qs = 120 + (3 \times400)Qs=120+(3×400)

Qs = 1320Qs=1320

and

Qd = 1200 - 400 = 800Qd=1200−400=800

From the above price Rd 400, we can say that There is more supply than Demand because the price is high.

When Price rises to Rs 120

Qs = 120 + (3 \times120)Qs=120+(3×120)

Qs = Rs 480Qs=Rs480

And

Qd = 1200 - 120 = Rs 1080Qd=1200−120=Rs1080

The above price change implies that there is more demand than supply as the price is low.