In a perfectly competitive market, assume demand and supply curve of commodity Z as follows:

qD = 500 - p,

qS = 350 + 2p.

Excess supply will exist at price of?

60

The correct answer is Option 1: 60

Equilibrium price is 500

– p = 350 + 2p

350 = 2p + p

150 = 3p

50 = p

At any price greater than equilibrium price, i.e., price> 50, there will be excess supply. This can be confirmed by putting any price greater than 50 in both the equations – equation of market demand and market supply.

Let’s put p = 60.

Qd = 500 –

p = 500 –

60 = 440

Qs = 350 + 2p = 350 + 2(60) = 470

It can be seen that Qs (470) > Qd (440).