CA Foundation · Business Economics · Theory of Demand and Supply
Demand for a good is Qd = 300 − 5P and supply is Qs = 60 + 3P. If the price is fixed at ₹40, what is the position in the market?
At a price of ₹40, quantity demanded is 100 units and quantity supplied is 180 units. Supply exceeds demand, so there is a surplus rather than a shortage, which puts downward pressure on price towards the equilibrium of ₹30.
- AExcess supply of 40 unitsCorrect
- BExcess demand of 40 units
- CExcess supply of 20 units
- DMarket is in equilibrium
Explanation
Equilibrium: 300 − 5P = 60 + 3P gives P = ₹30. At ₹40, Qd = 300 − 200 = 100 and Qs = 60 + 120 = 180. Supply exceeds demand by 80 units, so the answer is excess supply. Correct figure check: 180 − 100 = 80.
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