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CA Foundation · Business Economics · Theory of Demand and Supply

Demand is Qd = 200 − 4P and supply is Qs = 20 + 5P. If the government imposes a per-unit rise in supply cost so that the supply becomes Qs = 5P − 25 (a leftward shift), what is the new equilibrium price?

Equating 200 − 4P with 5P − 25 gives 225 = 9P, so the new equilibrium price is ₹25, with quantity of 100 units. The original price of ₹20 is outdated because supply has shifted left.

  1. A₹20
  2. B₹25Correct
  3. C₹30
  4. D₹22.50

Explanation

Set 200 − 4P = 5P − 25, so 225 = 9P and P = ₹25. Check: Qd = 200 − 100 = 100 and Qs = 125 − 25 = 100. The old price was 180/9 = ₹20, so choosing ₹20 ignores the supply shift.

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