Answer to Question #139842 in Microeconomics for Max jain

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,

$Qd=Qs$

$1200-P = 120+3P$

Solving the above

$4P = 1080$

Hence Equilibrium price

$P = Rs 270$

When price Rises to Rs 400

$Qs = 120 + (3 \times400)$

$Qs = 1320$

and

$Qd = 1200 - 400 = 800$

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

$Qs = 120 + (3 \times120)$

$Qs = Rs 480$

And

$Qd = 1200 - 120 = Rs 1080$

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