In a market with a fixed number of firms, qD = 300 – 2p and qS = 3p – 50 (p in rupees). The prevailing price is Rs 60. Which of the following correctly describes the market and how it adjusts?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Excess demand of 50 units; the price rises to Rs 70 and the quantity supplied rises by 30 units
Given:
qD = 300 − 2p
qS = 3p − 50
Prevailing price = Rs 60
First compare demand and supply at Rs 60:
\( q^D = 300 - 2(60) = 180 \)
\( q^S = 3(60) - 50 = 130 \)
\( q^D - q^S = 180 - 130 = 50 \)
There is an excess demand of 50 units, so the price rises. It stops rising at the equilibrium price, where demand equals supply:
\( 300 - 2p = 3p - 50 \)
\( 5p = 350 \)
\( p^* = 70 \)
\( q^* = 300 - 2(70) = 160 \)
As the price rises from Rs 60 to Rs 70, quantity supplied rises from 130 to 160, by 30 units.
Option (1) Excess demand of 50 units; the price rises to Rs 70 and the quantity demanded rises by 20 units — quantity demanded falls from 180 to 160; it does not rise by 20.
NCERT (2026-27): “5.1.1 Market Equilibrium: Fixed Number of Firms … In Figure 5.1, if the prevailing price is p1, the market demand is q1 whereas the market supply is q'1 . Therefore, there is excess demand in the market equal to q'1 q1. Some consumers who are either unable to obtain the commodity at all or obtain it in insufficient quantity will be willing to pay more than p1. The market price would tend to increase. All other things remaining the same as price rises, quantity demanded falls and quantity supplied increases. The market moves towards the point where the quantity that the firms want to sell is equal to the quantity that the consumers want to buy. This happens when price is p* , the supply decisions of the firms only match with the demand decisions of the consumers.” |