STUDENT ID: MC190405261

ECONOMICS (ECO401)

ASSIGNMENT I

CASE:
For every low, there’s a high and it is a fact that pandemic of COVID-19 has a silver lining too
along with its negative impact on economy. As we know that during this lockdown, people
restricted visiting markets and stores in order to lessen the penetration rate of this disease. This is
how pandemic helped to reduce the operational cost and also uplifts the e-commerce sales
channel development. To cater this increase in e-commerce sales, Daraz, Pakitan’s biggest
digital store launched dMart to provide the service of grocery delivery at doorstep. This online
grocery store is dealing in number of items like as Surf excel, Lipton Yellow Label tea, Hand
sanitizer, Knorr Chilli Garlic and Tomato Ketchup etc. Suppose the quantity demanded and
quantity supplied functions for Surf excel of this dMart grocery store during this lockdown are as
below:

Qd = 1900 - 60P

Qs = 300 + 20P

Where ‘P’ is the price in rupees of a packet of Surf excel and ‘Qd’ is quantity demanded of a
packet of a Surf excel. ‘Qs’ is quantity supplied of a packet of Surf excel.

Requirements:

a. Calculate the market equilibrium level of price and quantity.

b. Calculate price elasticity of supply using point elasticity method when dMart is in equilibrium
and interpret the result.

c) What will happen to supply, equilibrium price and equilibrium quantity of a packet of Surf
excel if dMart improves technology?

Solution:
Part A

Qd= 1900-6P

Qs= 300+ 20P

We know that equilibrium is the point at which quantity supplied is equal to quantity demanded

Qs = Qd

1900-60P =300+20P

60P +20P = 1900- 300

80P= 1600

P = 1600/80

P= 20rs

Putting P in any of the function

Qd = 1900 -60(20)

Qd =1900-1200

Qd =700

Qs= 300+20(20)

Qs = 300+400

Qs= 700

Equilibrium P =20, Qs = Qd =700

Part B
Price elasticity of supply using point elasticity:

dQ s
∗P
dP
E= … … .. Eq(1)
Qs

P and QS are equilibrium price and quantity supplied respectively, given that

Qs = 300+ 20P

Tacking derivative w.r.t P

dQs
=20
dP

P = 20, QS =700
Put this value in eq(1)

20∗20
E= =0.571
700

As supply is point inelastic which means 1 rupees change in price cause 0.571 unit changes in
quantity supplied.

Part C
If dMart improves its technology then supply will increase. Equilibrium price will decrease and
it increasing the equilibrium quantity.