ECONOMICS ECO401

ASSIGNMENT # 1

REQUIREMENT
1) Calculate the market equilibrium level of price and quantity.
2) Calculate price elasticity of supply using point elasticity method when dMart is in
equilibrium and interpret the result.
3) What will happen to supply, equilibrium price and equilibrium quantity of a packet of
Surf excel if dMart improves technology?

SOLUTION:
1) Calculate the market equilibrium level of price and quantity.
Equilibrium is the point where quantity supplied is equal to quantity demanded.
Qd = 1900 - 60P
Qs = 300 + 20P
Equilibrium price and quantity: Quantity Demanded = Quantity Supplied
Qd = Qs
1900 - 60P = 300 + 20P
1900-300 = 20P + 60P
1600 = 80P
P = 1600/80
P = 20rs
Let’s include the value of P in any equation.
Qd = 1900 – 60 (20)
Qd = 1900 – 1200
Qd = 700
Qs = 300 + 20 (20)
Qs = 300 + 400
Qs = 700
Hence, Equilibrium P = 20, Qs = Qd = 700
 2) Calculate price elasticity of supply using point elasticity method when dMart is in
equilibrium and interpret the result.
Є = dQs/dP x P/Q

Qs = 300 + 20P
Taking derivate w.r.t P

dQs/QP = 20

P = 20

Q = 700

Є = 20 x 20 / 700
Є = 400 / 700
Є = 0.571 (Price elasticity of supply)

Since price elasticity is in between 0 to 1, then it is called inelastic

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

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

If dMart improves technology, supply will increases & price decreases. As we know if price
decreases, equilibrium price will decreases & equilibrium quantity will increase.