ECO402 Solution

(A)

Market clearing price condition

Quantity demanded = Quantity supplied

1600-125p = 440+165p

1600-440 = 165p+125p

1160 = 290p

P = 1160/290

Now: P = 4

Now putting values in the quantity demanded side or supply side

we are putting values in the quantity demanded side

Qd = 1600-125p

= 1600-125(4)

Qd = 1100

Part (b) P = 5.50

Then

Qd Qs



= 1600-125p = 440+165

= 1600-125(5.50) = 440+165(5.50)

Qd = 912. 5 Qs = 1347.5

Part (c) Now

Excess supply = Qd –Qs

= 912 .5 -1345.7

= -435

(Q =435) This quantity will Government buy

Part (B) P = 70$ , MC = 50

P =MC/1+ (1/Ed)

Elasticity of demanded is equal to Marginal Cost, Marginal cost is equal to price

So are all equal on equilibriums point



Ed = MC = P

We find “Ed”

MC = 50 , P =70

Ed = MC - P = 50 – 70 here is some dought

Ed = -20[/color][/b]