Answer to Question #146571 in Macroeconomics for laiba

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 at Qd = Qs

65 - 10P = -35 + 15P

100 = 25P

P = 4

Q = 65 – (10 $\times$ 4) = 25

equilibrium price is $4 and quantity is 25

b)

i) if P = 6

Qd = 65 – (10 $\times$ 6) = 6

Qs = -35 + (15 $\times$ 6) = 55

The market is in not equilibrium and market is having surplus due to higher price. quantity supplied is exceed quantity demanded.

ii) if P = 2

Qd = 65 - (10 $\times$ 2) = 45

Qs = -35 + (15 $\times$ 2) = -5

The market demand is not equilibrium and since price is low than equilibrium and there is a shortage in market

c)