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Economics (ECO401)
Assignment No.01
Opening Date and Time October 26, 2010 At 12:01 A.M. (Mid-Night)
Due Date and Time November 01, 2010 At 11:59 P.M. (Mid-Night)

Don’t Copy/Paste. Just take idea.

Qd = 850 – 15P
Qs = 400 + 30P
A. Find quantity demanded and quantity supplied when the price of coffee is
Rs. 8. Is there a surplus or shortage in the production of coffee? What
should happen to the price of coffee?
B. Find the equilibrium price for coffee by using given demand and supply
equations.
C. Prove that the price found in part (B) is an equilibrium price. D.
Show the equilibrium condition in coffee market graphically.
Marks: A = 6(4+1+1), B = 2, C = 3, D = 4

Ans. A.

Qd = 850 – 15 p Qd

= 850 – 15(8) Qd =

730

Now we calculate Qs?

Qs = 400 + 30 p

Qs = 400 + 30(8)

Qs. = 400 + 240

Qs = 640

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Quantity Demanded = 730 Quantity supplied = 640

Demand is more than supply. It means there is shortage prevails.


Rs. 8 is not equilibrium price as here qd is not equal to qs.

There is shortage, so the shortage will push price to increase.

Ans. B.

Qd = 850 – 15P
Qs = 400 + 30P

As we know, at equilibrium price, QD is equal to QS.

So,
850 – 15p = 400 + 30 p

850 – 400 = 30p + 15 p

450 = 45p

dividing both the sides by 45

10 = p

so the equilibrium price = 10 where demand is equal to supply.

Ans. C.

Prove:-

Qd = 850 – 15P
Qs = 400 + 30P

By putting price = 10 into both the equations.

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Qd = 850 – 15(10)
Qd = 700

Qs = 400 + 30(10)
Qs = 700

We can see that at p= 10, QD = QS. No shortage or surplus exists. So, it is proved.

Graphically
According to the equations, supposing different
prices
Qd = 850 – 15P
Qs = 400 + 30P

Demand Quantity Supply


Demanded
5 775 550
6 760 580
7 745 610
8 730 640
9 715 670
10 700 700
11 685 730
12 670 760
13 655 790
14 640 820
15 625 850

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900
800
700
600
500 Demand
400 Supply
300
200
100
0

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