Skip to content

CA Foundation · Business Economics · Theory of Demand and Supply

The demand and supply functions for a commodity in a local market are Qd = 200 − 5P and Qs = 20 + 4P, where P is in rupees. What are the equilibrium price and equilibrium quantity?

Equating demand and supply, 200 − 5P = 20 + 4P gives 9P = 180, so the equilibrium price is ₹20. Substituting this into either function gives a quantity of 100 units, since 200 − 100 = 100 and 20 + 80 = 100.

  1. AP = ₹20, Q = 100Correct
  2. BP = ₹20, Q = 80
  3. CP = ₹18, Q = 110
  4. DP = ₹25, Q = 75

Explanation

Set Qd = Qs: 200 − 5P = 20 + 4P, so 180 = 9P and P = 20. Quantity = 200 − 5(20) = 100, and check with supply: 20 + 4(20) = 100. Option B uses the wrong quantity of 80, which matches neither curve at P = 20.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Demand and Supply shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Demand and SupplyFree diagnostic mock

More Theory of Demand and Supply questions