1. equilibrium price and quantity
qD = 1000 – P
qS = 700 + 2P
For equilibrium
qD = qS 1000 – P = 700 + 2P
1000 – 700 = 3 P
3P = 300 P = 300/3 = 100
Put the value of P in supply equation
qS = 700 + 2P
qS = 700 + 2×100
qS =700 + 200 = 900
Therefore the equilibrium price = ? 100 and
the equilibrium quantity is = 900 units
2. For equilibrium qD = qS
1000 – P = 400 + 2P
1000 – 400 = 3P
600 = 3 P
P = 600 / 3 = 200
Put the value of P in demand equation
QD = 1000 – P
QD = 1000 – 200 = 800
Therefore the equilibrium price = ₹200 and the equilibrium quantity is = 800 units This change confirms to our expectations, i.e., rise in input prices raises prices and lowers supply.
3. qD = 1000 – P
qS = 700 + 2P
When ₹3 as tax is imposed on sale of salt the new demand and supply function will change
qD = 1000 – (P + 3)
qS = 700 + (2P +3)
In part A equilibrium price was ₹100 which goes up to ₹103 with imposition of tax
qD = 1000 – (100 + 3) = 1000 – 103 =897
qS = 700 + (2P + 3)
= 700 + 2(100 + 3)
= 700 + 2×103
= 700 + 206
= 906 qD < qS
Therefore, new price and quantity has to be adjusted.