Bc190402760

ECO401 Assignment 1
Fall 2020

Question 1:
Qd =1900- 60P , Qs = 300 + 20P

a. Calculate the market equilibrium level of price

and quantity.

We know that Equilibrium is the point where

Qd = Qs

1900- 60P=300 + 20P

1900-300=20P+60P

1600=80P

P=1600/80

P= Rs.20

Put the price value in the demand function for equilibrium

Qd=1900-60P
 =1900-60(20)

= 1900-1200 = 700

Put the price value in the supply function for equilibrium

Qs = 300 + 20P

= 300+20(20) =300+400=700

Therefore market equilibrium of P=20 and

Quantity=Qs=Qd=700.

b. Calculate price elasticity of supply using point

elasticity method when d Mart is in equilibrium and

interpret the result.

Price elasticity of supply using point elasticity

By the formula of Point elasticity

E= dQ/dP * P/Q

Since P and Q are equilibrium Price & quantity

Given that

Qs=300+20P

Taking derivative w.r.t “P”

We get,

dQs/dP= d/dp(300+20P)

=d/dP(300)+d/dP(20P)

= 0+20

dQ/dP=20

As

dQs/dP=20, P=20, Q=700

By Putting values in formula,

E=20*20/700

=0.5714

As Supply is point inelastic which means one rupee change in price cause 0.5714 unit change in
Qs.

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

If d Mart improves technology, equilibrium price will be reduced and equilibrium quantity will be
increased. Due to reduced in cost of production, the supply will be increase. Efficiency increases
and the supply curve shift rightward.