Question:
The demand and supply curves for oranges in a competitive market is given by the following equations respectively: $Q_{D}=600-5P$, $Q_{S}=-240+3P$. If the price of an orange is set at Rs. 100 in this market, then there will be an:
(1) excess demand of 40 units.
(2) excess supply of 40 units.
(3) excess demand of 350 units.
(4) excess supply of 350 units.
(5) equilibrium price and quantity remain unchanged.
Correct Answer:
(1)
Answer Explanation:
Substitute P = 100 into both equations. Quantity Demanded ($Q_{D}$) = 600 – 5(100) = 100. Quantity Supplied ($Q_{S}$) = -240 + 3(100) = 60. Since $Q_{D} > Q_{S}$, there is an excess demand (shortage) of 40 units (100 – 60).
Topic: Market Equilibrium Year: 2023
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