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Suppose the demand and supply curves of ...

Suppose the demand and supply curves of a Commodity X is given by the following two equations simultaneously:
Qd = 200 - p , Qs = 50 + 2p
(i) Find the equilibrium price and equilibrium quantity.
(ii) Suppose that the price of a factor of production producing the commodity has changed, resulting in the new supply curve given by the equation:
Qs'=80+2p`
Analyse the new equilibrium price and new equilibrium quantity as against the original equilibrium price and equilibrium quantity.

Text Solution

Verified by Experts

(i) We know that the equilibrium price and quantity are achieved at:
`Qd=Qs`
`200-p=50+2p`
`(-)3p=(-)150`
Therefore, Equilibrium Price (p) = 50
And, Equilibrium Quantity (q) = 200-50 = 150 units
(ii) If the price of factor of production has changed, then under the new conditions:
`Qd=Qs`
`200-p=80+2p`
`(-)3p=(-)120`
Therefore, Equilibrium Price (p) = 40
And, Equilibrium Quantity (q) =200-40=160 units
Thus, as the equilibrium price is decreased, the equilibrium quantity is increased.
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