ECO402 Assignment 1 Solution Fall 2022

bc220206393
Muhammad ismail

A. What is the equilibrium price and equilibrium quantity of rice in domestic

rice market. Also show the market equilibrium graphically.
Equilibrium price is that price in which quantity demanded becomes equals
to quantity supplied. In given question equilibrium price is Rs. 180 is equal to
quantity demanded 90,000
Equilibrium Quantity = 90,000
Equilibrium Price = 180
B. Calculate price elasticity of supply when price of rice is rupees 160.
Price elasticity of supply = % change in Quantity / % change in Price
% Change in Quantity = (Q2– Q1/ Q2+ Q1/2) X 100
= (92000 – 98000 / 92000 + 98000) X 100
= (- 6000 / 190,000) X 100
= - 0.03157 X 100
= - 3.158
% Change in Price = (P2 – P1/ P2 + P1/2) X 100
= (160 – 140 / 160 + 140) X 100
= (20 / 300) X 100
= 0.066 X 100
= 6.666

Price elasticity of supply = % change in Quantity / % change in Price

Price elasticity of supply = - 3.158 / 6.666
Price elasticity of supply = 0.47

C. What does the value of elasticity of supply calculated in part B represent?

Price elasticity calculated in B shows the change which will occur in supply due to
change in price.
D. Suppose government has given support to rice producers and as a result,
numbers of suppliers of rice in domestic market are increased. Graphically
analyze the impact of this situation on equilibrium price and equilibrium
quantity of rice.