Q15 of 15 Page 5

Suppose the demand and supply curve of commodity X in a perfectly competitive market are given by:

qD = 700 – p


qS = 500 + 3p for p ≥ 15


= 0 or 0 ≤ p < 15


Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?



At equilibrium qd = qs


700 – p = 500 + 3p


– p -3p = 500 – 700


– 4p = – 200


p = 50


Equilibrium price is Rs 50.


Quantity = qs = 500 + 3p


= 500 + 3 (50)


= 500 + 150


= 650


Therefore, the equilibrium quantity is 650 units.


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