Read the following passage and answer the questions.
Suppose there is a market consisting of identical firms producing the same quality of salt.
Suppose the market demand curve and the market supply curve for salt are given by:
$Q_D=350-p$ for $0 ≤ p ≤ 350$
= 0 for p > 350
$Q_S = 220 + p$ for $p ≥ 10$
= 0 for 0 ≤ p < 10
Where $Q_D$ and $Q_S$ denote the demand for and supply of salt (in kg) respectively and p denotes the price of salt per kg in rupees.
If demand for salt increases, and there is no change in the equilibrium price in the market, how does it affect the market?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Increase in demand increase in supply
In the given market, the equilibrium price remains unchanged even though the demand increases.
This means:
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The demand curve shifts rightward (increase in demand).
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To keep the price constant, the supply must also increase by exactly the same amount as the increase in demand.
If supply had not increased, or had increased by a smaller amount, the equilibrium price would have risen.
If supply had increased by more than demand, the price would have fallen.
Therefore, for the price to remain the same, Increase in Demand=Increase in Supply