ECO401 Assignment 1 solution 2020 with Download

  Solution :

ECO401 Assignment 1 solution 2020

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Ans :

A)

Qd = 4500-7p

Qs = 1500+p

Qd = Qs

4500-7p=1500+p

4500-1500=7p+p

3000 = 8p

P = 3000/8 

P = 375

Put values in equation

Q = 4500-7(375)

Q = 1875

The equalibrium price is 375

And Equalibrium quantity is 1875

B)

Qd = 4500 – 7p      ----------------- is eq.1

Qs = 1500+p  -------------------------is eq 2

Now use equation 1

Qd = 4500 – 7p

We will take derivative of eq.1

Which will be = Qd/Qp = -7

The formula of elasticity = (dQ / Dp) (P/Q)

Put values                          = 7*(375/1875)

= 1.4

Now use equation 2

Take derivative

Qs / Qp = 1

The formula of elasticity = (dQ / Dp) (P/Q)

Put values                          = 1 * (375/1875)

= 0.2

Its absolute value is less than one so it is point inelastic.

C)

Subsidies for producers increase when supply and the quantity demanded by consumers.

The governament provides production subsidies whenever it is in the interest of the public in order to meet demand.As the producer increase supply, The cost of production is reduced , allowing the suppliers to profit from both the subsidy and lower costs.As the result price is also decrease of hand sanitizer in domestic market.