Microeconomics ECO402

Assignment no. 1

Solution:

Equilibrium price and quality

Set Qd equal to Qs
Qd=Qs
20100-0.3P=100+0.7P
20100-100=0.7P+0.3P
20000=1.0 P
P=Price=20,000
Put P into either demand and supply function
Qs=100+0.7P
Qs=100+0.7(20000)
Qs=100+14000
Qs=14100
Qs=quantity supply=14,100

2.
Increase in production cost would shift the supply curve to the left.
 Series 1
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Category 1 Category 2 Category 3 Category 4

Series 1

3. Price elasticity of supply

Given data:
Initial price=P1=15,000
Final price=P2=20,000
Initial quantity supplied=Qs1=10,100
Final quantity supplied=Qs2=14,100
P 2−P 1
Percentage change in price= P 1+ P 2 x100
2
20,000−15,000
= 15,000+20,000 x100
2
5000
= 35,000 x100
2
5000
= x100
17,500

=0.2857x 100
=28.57%

Qs 2−Qs 1
Qs1
Percentage change in quantity supplied=
P 2−P 1
P1
14,100−10,100
10100
=
20,000−15,000
15000
4000
10,100
=
5000
15,000
0.396
=
0.333
=1.189

%change∈quantity supplied
We know Es=
% change∈ price
33.06
=
28.57

=1.157

Price elasticity of the supply=1.157