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QUESTION-1: FOR THE FOLLOWING DEMAND & SUPPLY FUNCTION: QD2 + P2 = 49 QS = -2 +0.40P a.

DRAW THE DEMAND & SUPPLY EQUATIONS b. FIND MARKET EQUILIBRIUM OF PRICE & QUANTITY.

ANSWER: 1a). THE GIVEN DEMAND FUNCTION IS QD2 + P2 = 49 => QD2 + P2 = 72

THE ABOVE FUNCTION IS NON-LINEAR AND REPRESENTS A CIRCLE WITH THE RADIUS OF 7. CONSIDERIING QD, P>= 0, IF WE DRAW THE DEMAND EQUATION IT WILL BE AS BELOW; P
(0,7)

QD2 + P2 = 49 (FOR QD, P>= 0) QD

(0,0)

(0,7)

FIGURE: THE 1ST QUADRANT LINE REPRESENTS THE DEMAND FUNCTION QD2 + P2 = 72 (FOR QD, P>= 0)

THE GIVEN SUPPLY FUNCTION IS QS = -2 +0.40P QS -0.40P = -2

=>

QS

P
5 0

USING T-METHOD

0 -2

WE GET TWO POINTS (0,5) AND (-2,0) TO DRAW THE EQUATION AS BELOW

P `
(0,5)

(-2,0)

QS

FIGURE: SUPPLY FUNCTION QS = -2 +0.40P (FOR QS, P>= 0)

1b). FINDING MARKET EQUILIBRIUM FOR THE FOLLOWING DEMAND AND SUPPLY FUNCTIONS; QD2 + P2 = 49 --------- (I) QS = -2 +0.40P---------(II) FOR THE EQUILIBRIUM, QD = QS SUBSTITUTE THE VALUE OF QS FROM EQN (II) INTO EQN (I), WE GET, (-2 +0.40P)2 +P2 = 49 => (-2)2 + 2.(-2).(0.40P)+ (0.40P)2 +P2 = 49 => 4 1.60P + 0.16P2 + P2 = 49 => 1.16P2 1.60P -45 = 0 --------(III)

EQN (III) IS A QUADRATIC FUNCTION. SO, - (-1.60) (-1.60)2 4 (1.16) (-45) P = 2 (1.16) 1.16 211.36 = 2.32 1.60 14.53 = 2.32

= 6.95 (FOR QS, P >= 0)

FROM EQN (II) WE GET, QS = -2 + 0.40P => QS = -2 + 0.40 (6.95) => QS = 0.78 SO, AT MARKET EQUILIBRIUM THE VALUE OF P & QS ARE 6.95 AND 0.78 RESPECTIVELY.

QUESTION -2: CONSIDER THE MARKET FOR HOUSING. IF POPULATION OF DHAKA, AND AT THE SAME TIME PRICE OF STEEL PSTEEL ,BOTH POPDHAKA OCCURRING SIMULTANEOUSLY, WHAT IMPACT THESE WILL HAVE ON EQUILIBRIUM P & Q (PRICE & QUANTITY) OF HOUSE/APT IN DHAKA. YOU NEED TO DRAW THREE GRAPHS TO ANSWER AND EXPLAIN. ANSWER: POPULATION IS ONE OF THE MOST IMPORTANT FACTORS EFFECTING DEMAND CURVE AND DEMAND OF HOUSING IF POPULATION INCREASES THE DEMAND CURVE WILL SHIFT TOWARDS RIGHT. SO, IF POPDHAKA , DEMAND CURVE WILL SHIFT RIGHT.

STEEL IS AN IMPORTANT INPUT FOR HOUSING. IF PRICE OF STEEL INCREASES, PSTEEL THEN CONSTRUCTION COST WILL BE HIGHER, FROM THE THEORY OF SUPPLY WE KNOW THAT FOR THIS CASE SUPPLY CURVE WILL SHIFT TOWARDS LEFT. SO, IF PSTEEL , SUPPLY CURVE WILL SHIFT LEFT.

IF BOTH POPDHAKA AND PSTEEL FOLLOWING CASES WILL OCCUR;

INCREASE

SIMULTANEOUSLY

THE

CASE-1: FROM THE THEORY OF DEMAND, D-CURVE WILL SHIFT RIGHT IF POP DHAKA COMPARING INITIAL EQUILIBRIUM P [=P*] EQUILIBRIUM P[=P] WE FIND P>P* [P ] COMPARING INITIAL EQUILIBRIUM Q [=Q*] EQUILIBRIUM Q[=Q] WE FIND Q< Q* [Q ] FROM THE THEORY OF SUPPLY, IF PSTEEL S-CURVE WILL SHIFT LEFT COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM P[=P] WE FIND P>P* [P ] COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM Q [=Q] WE FIND Q<Q* [Q ]

WITH

NEW

WITH

NEW

P[=P*]

WITH

NEW

Q[=Q*]

WITH

NEW

AND PSTEEL , BOTH OCCURRING SIMULTANEOUSLY SO, IF POPDHAKA IN HOUSING MARKET, PHOUSING WILL DEFINITELY . HOWEVER, QUANTITY QHOUSING WILL DECREASE .

CASE 2: FROM THE THEORY OF DEMAND, IF POP DHAKA D-CURVE WILL SHIFT RIGHT COMPARING INITIAL EQUILIBRIUM P [=P*] EQUILIBRIUM P[=P] WE FIND P>P* [P ] COMPARING INITIAL EQUILIBRIUM Q [=Q*] EQUILIBRIUM Q[=Q] WE FIND Q> Q* [Q ]

WITH

NEW

WITH

NEW

FROM THE THEORY OF SUPPLY, IF PSTEEL S-CURVE WILL SHIFT LEFT COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM P[=P] WE FIND P> P* [P ] COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM Q [=Q] WE FIND Q> Q* [Q ]

P[=P*]

WITH

NEW

Q[=Q*]

WITH

NEW

AND PSTEEL , BOTH OCCURRING SIMULTANEOUSLY SO, IF POPDHAKA IN HOUSING MARKET, P HOUSING WILL DEFINITELY . HOWEVER, QUANTITY QHOUSING WILL INCREASE ALSO.

FOR CASE-3: FROM THE THEORY OF DEMAND THEN D-CURVE WILL SHIFT RIGHT IF POPDHAKA COMPARING INITIAL EQUILIBRIUM P[=P*] EQUILIBRIUM P[=P] WE FIND P> P* [P ] COMPARING INITIAL EQUILIBRIUM Q [=Q*] EQUILIBRIUM Q[=Q] WE FIND Q= Q* FROM THE THEORY OF SUPPLY, IF PSTEEL S-CURVE WILL SHIFT LEFT COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM P[=P] WE FIND P>P* [P*] COMPARING INITIAL EQUILIBRIUM EQUILIBRIUM Q [=Q] WE FIND Q= Q*

WITH

NEW

WITH

NEW

P[=P*]

WITH

NEW

Q[=Q*]

WITH

NEW

AND PSTEEL , BOTH OCCURRING SIMULTANEOUSLY SO, IF POPDHAKA IN HOUSING MARKET, PHOUSING WILL DEFINITELY . HOWEVER, QUANTITY QHOUSING WILL REMAIN SAME.

CONCLUSION: FROM THE ABOVE THREE CASES WE FIND; IF POPDHAKA AND PSTEEL ; BOTH OCCURRING SIMULTANEOUSLY THEN IN HOUSING MARKET PRICE OF HOUSE/APT (PH) WILL DEFINITELY INCREASE . HOWEVER, QUANTITY OF HOUSE MAY INCREASES, DECREASES OR REMAIN UNCHANGED.

S P
E(P,Q)

S
E(P,Q)

P P P*

S
E(P,Q)

P P*
E*(P*,Q*)

P P*
E*(P*,Q*)

E*(P*,Q*)

Q Q* CASE-1: P Q

Q* Q CASE-2: P Q

Q* =Q CASE-3: P = Q