ECO402 Assignment Solution

Question 1

Part A

Qd= 850-25P

Qs= 500+45p

To find equilibrium price

Qd=Qs

850-25p=500+45p

After solving the equation we have the value of P, which is equilibrium price.

Then put he value of p in any one of the equation of quantity then we have the equilibrium quantity Q.

Part B

For calculating elasticity of demand we have the formula…

Elasticity of demand = Ed = dQ/dP / Q/P

Derivative should b taken of demand function (Qd= 850-25P) with the respect to P

Ed is negative. 

For calculating elasticity of supply we have the formula…

Elasticity of demand = Es = dQ/dP / Q/P

Derivative should b taken of supply function (Qs= 500+45p) with the respect to P

Es is positive.

Question 2

q	TU	MU
0 1 2 3 4 5 5 7 8	0 10 18 24 28 30 30 28 24	--

Mu= dTU/dQ

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QNO1

A:

QD=QS

QD=850-25P
QS=500+45P
WE KNOW QD=QS
SO
850-25P=500+45P
850-500=45P-25P
350=20P
P=350/20
=17.5
QS=500+45P
QS=500+45(17.5)
QS=500+787.5
QS=1287.5
AS WE KNOW QS=QD FOR EQULIBRIUM

SO it will be at 1287.5
............

Qd=Qs
850-25p=500+45p
850-500=45p+25p
350=70p
p=350/70
p=5 ( equilibrium price)
Now,
Putting the value of P in eq 1, we will get the equilibrium quantity,
Q=500+45(5)
Q=500+225
Q=725 per bushel

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