Let us consider the example of a market consisting of identical farms producing the same quality of wheat. Suppose the market demand curve and the market supply curve for wheat are given by: $q^D = 200 - p$ and $q^S = 120 + p$. What is the equilibrium price?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 40 per kg.
To find the equilibrium price, we set quantity demanded (qD) equal to quantity supplied (qS):
Given:
-
Demand: qD = 200 − p
-
Supply: qS = 120 + p
At equilibrium, qD = qS
So, 200 − p = 120 + p
200 − 120 = p + p
80 = 2p
p = 40
The equilibrium price is Rs. 40 per kg.