Eco 401 Assignment No 1 Fall 2018

Question No. 1:

Solution:
Demand function of urea:
Qd = 6500- 0.5P
Supply function of urea:
Qs = 500 + 2.5P
Thus we cas say:
6500-0.5P = 500+2.5P
6500 - 500 = 0.5P + 2.5 P
6000 = 3P
6000/3 = P 2000 = P
The equilibrium price is therefore 2000.
Demand equation:
QD = 6500 - 0.5P
As P=2000: QD = 6500-0.5(2000)
QD = 6500 - 1000
QD = 5500
Supply equation:
QS = 500 + 2.5P
As P=2000: QS = 500+ 2.5 (2000)
QS = 500 + 5000
QS = 5500
Hence it’s proved that QS= QD.
Question2:
Solution:
1) Shortage
2) Shortage
3) Equilibrium
4) Surplus
Question: 3 Consider the data on prices and quantity demand of urea given in this part and calculate price elasticity of demand if price of urea decrease from Rs. 2000 per bag to Rs. 1700 per bag.
Solution:
YED = Q ÷ Y
QY
=150 ÷ 300
5500 2000
=0.45