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 the demand for salt increases supply remains the same and the new demand curve is $Q_D = 400-p$. What will be the new equilibrium price?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 90
New Demand is $Q_D'$ = 400−p
Supply (Unchanged): $Q_S = 220 + p$
At equilibrium, $Q_D'$ = $Q_S$
400 - p = 220 + p
2p =400-220
p = 90
Substitute p=90p into either equation:
$Q_D'$=400−90=310 (or $Q_S$=220+90=310 same result)
Equilibrium Price = Rs 90
Equilibrium Quantity = 310 units
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