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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:

QD={350−pfor 0≤p≤3500for p>350Q_D = \begin{cases} 350 - p & \text{for } 0 \leq p \leq 350 \\ 0 & \text{for } p > 350 \end{cases}

QS={220+pfor p≥100for 0≤p<10Q_S = \begin{cases} 220 + p & \text{for } p \geq 10 \\ 0 & \text{for } 0 \leq p < 10 \end{cases}

Where QDQ_D and QSQ_S denote the demand for and supply of salt (in kg) respectively and pp 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?

Solution

✅ Correct Option: 1

Option 1 -> When demand increases and supply also increases by the same magnitude, equilibrium price remains constant.

Option 2 -> If supply remains unchanged while demand increases, equilibrium price would rise, not remain constant.

Option 3 -> If demand increases while supply decreases, equilibrium price would increase significantly.

Option 4 -> If demand increase exceeds supply increase, equilibrium price would still rise.


Hence, Option 1: Increase in demand = increase in supply -> For equilibrium price to remain unchanged when demand increases, supply must increase by an equal amount. Both demand and supply curves shift rightward proportionally, resulting in higher equilibrium quantity but the same equilibrium price. This scenario often occurs with commodities like salt where production can be scaled up to meet increased demand without significant price changes. -> correct

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