ECO402 Assignment Solution fall 2010 october

[Xpert]

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


;;;;;;;;;;;;;;;;;




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