IAI Actuarial Core Principles · Business Economics · How competitive markets operate
The market for a commodity has demand Qd = 500 - 4P and supply Qs = 100 + 6P, where P is in rupees. What is the equilibrium price and quantity?
Equilibrium price is Rs 40 and quantity is 340. Setting demand equal to supply gives 400 = 10P, so P = 40, and substituting into either curve gives 340 units, which satisfies both equations.
- AP = 30, Q = 380
- BP = 40, Q = 340Correct
- CP = 40, Q = 360
- DP = 50, Q = 300
- P = 40, Q = 400
Explanation
Set 500 - 4P = 100 + 6P, so 400 = 10P and P = 40. Quantity = 500 - 160 = 340, check with supply: 100 + 240 = 340. Option P=40, Q=360 or 400 comes from arithmetic slips, not consistent with both curves.
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