Question

Assume the following demand and supply equations (price in $, quantity in 000 units):

Demand: Qd = 240 - 17.5P

Supply: Qs = 100 + 8P

What is the equilibrium price? What is the equilibrium quantity?

Suppose, a seller decides to sell the product at $4 per unit. What will happen?

Answer #1

Solution :-

Equilibrium Price is the price at which demand and supply is equal

Qd = Qs

240 - 17.5 P = 100 + 8 P

140 = 25.5 P

P = $5.49

Now Equilibrium Price = $5.49

Equilibrium Quantity = 240 - 17.5 P

= 240 - ( 17.5 * $5.49 )

= 143.92 Units

144 Units ( Approx )

= 144,000 units

(ii) If Selling Price = $4 Per unit

Then Demand = 240 - ( 17.5 * $4 ) = 170 Units

= 170,000 Units

Supply = 100 + ( 8 * $4 ) = 132 Units

= 132,000 Units

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