VIRTUAL UNIVERSITY OF PAKISTAN

ASSIGNMENT # 1 (ECO401)

STUDENT ID: bc200401035

STUDENT NAME: MUSKAN ZEHRA

PROGRAM: BS PSYCHOLOGY

Question:
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.

Solution (Part A)

Given:

Qd=900-60P

Qs=300=20P

In Equilibrium

Qd=Qs

1900-60P=300+20P

1900-300=20P+60P

1600=80P

1600 =P
80

20=P

OR

P=20Rs
So, P=20

Putting value of P in eq (i)

Qd=1900-60(20)

=1900-1200

=700

Therefore market equilibrium of price is P=20 & Quantity,Q=700

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

Solution (Part B)

Here Qs=300+20P

Differentiating with respect to P

d (Q) = d (300+20P)

Dp Dp

dQ = d (300) + d (20P)
Dp Dp Dp

=
0+
dQ 20
Dp

=20…….
dQ (i)
Dp

According to the formula

E= dQ x P
Dp Q

Putting values , we get

 E= 20 x 20
700

E= 400
700

E=0.571
4

Therefor
e,
Point elasticity of supply is E=0.5714 & it is inelastic point because E is lessthan 1 .

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

Solution (Part C)

If Dmart improves technology then the cost of production will be decreased which will increase
the Quantity of supply & as supply increases the equilibrium price will decrease increasing
equilibrium quantity respectively.