Micro

Market Equilibrium

Medium

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:

$Q_D = \begin{cases} 350 - p & \text{for } 0 \leq p \leq 350 \\ 0 & \text{for } p > 350 \end{cases}$

$Q_S = \begin{cases} 220 + p & \text{for } p \geq 10 \\ 0 & \text{for } 0 \leq p < 10 \end{cases}$

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 government imposes a price ceiling of Rs 31 on salt, what will be the volume of excess demand/ supply in the market?

Excess demand of 68 units.

Excess supply of 68 units.

Excess demand of 330 units.

Excess supply of 220 units.

✅ Correct Option: 1

Option 1 -> Price ceiling below equilibrium creates shortage where Qd > Qs.

Option 2 -> Excess supply occurs with price floor, not price ceiling.

Option 3 -> Incorrect calculation of the demand-supply gap at Rs 31.

Option 4 -> Excess supply contradicts price ceiling effects.

Hence, Excess demand of 68 units -> When a price ceiling of Rs 31 is imposed below the equilibrium price, quantity demanded exceeds quantity supplied at this price level. The difference between quantity demanded and quantity supplied at P = Rs 31 equals 68 units, creating a shortage in the market. This shortage occurs because at the artificially low price, consumers want to buy more than producers are willing to supply -> correct

Question 46

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 and quantity?

Question 47

Find the equilibrium price of salt in this market.

Question 48

If demand for salt increases, and there is no change in the equilibrium price in the market, how does it affect the market?

Question 49

Which of the following expressions will be used for calculating excess supply of salt in the market?

If the government imposes a price ceiling of Rs 31 on salt, what will be the volume of excess demand/ supply in the market?

Solution

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