ECO401 Assignment 01 Fall 2020 Solution / Discussion Due Date: 30-11-2020
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ECO401 Economics Assignment 1 Solution & Discussion Fall 2020
SEMESTER FALL 2020
ECONOMICS (ECO401)
ASSIGNMENT I
Marks: 10
Due date: 30 Nov 2020
CASE:
For every low, there’s a high and it is a fact that pandemic of COVID-19 has a silver lining too along with its negative impact on economy. As we know that during this lockdown, people restricted visiting markets and stores in order to lessen the penetration rate of this disease. This is how pandemic helped to reduce the operational cost and also uplifts the e-commerce sales channel development. To cater this increase in e-commerce sales, Daraz, Pakitan’s biggest digital store launched dMart to provide the service of grocery delivery at doorstep. This online grocery store is dealing in number of items like as Surf excel, Lipton Yellow Label tea, Hand sanitizer, Knorr Chilli Garlic and Tomato Ketchup etc. Suppose the quantity demanded and quantity supplied functions for Surf excel of this dMart grocery store during this lockdown are as below:
Qd = 1900 - 60P
Qs = 300 + 20P
Where ‘P’ is the price in rupees of a packet of Surf excel and ‘Qd’ is quantity demanded of a packet of a Surf excel. ‘Qs’ is quantity supplied of a packet of Surf excel.
Requirements:
a. Calculate the market equilibrium level of price and quantity.
b. Calculate price elasticity of supply using point elasticity method when dMart is in equilibrium and interpret the result.
c) What will happen to supply, equilibrium price and equilibrium quantity of a packet of Surf excel if dMart improves technology?
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ECO401 Assignment 1 Solution Fall 2020 | ECO401 Assignment Solution 2020
ECO401 Assignment 1 Solution Fall 2020 | ECO401 Assignment Solution 2020
ECO401 Solution Assignment#01 Fall 2020
SEMESTER FALL 2020
ECONOMICS (ECO401)
ASSIGNMENT I
Marks: 10
Due date: 30 Nov 2020
CASE:
For every low, there’s a high and it is a fact that pandemic of COVID-19 has a silver lining too along with its negative impact on economy. As we know that during this lockdown, people restricted visiting markets and stores in order to lessen the penetration rate of this disease. This is how pandemic helped to reduce the operational cost and also uplifts the e-commerce sales channel development. To cater this increase in e-commerce sales, Daraz, Pakitan’s biggest digital store launched dMart to provide the service of grocery delivery at doorstep. This online grocery store is dealing in number of items like as Surf excel, Lipton Yellow Label tea, Hand sanitizer, Knorr Chilli Garlic and Tomato Ketchup etc. Suppose the quantity demanded and quantity supplied functions for Surf excel of this dMart grocery store during this lockdown are as below:
Qd = 1900 - 60P
Qs = 300 + 20P
Where ‘P’ is the price in rupees of a packet of Surf excel and ‘Qd’ is quantity demanded of a packet of a Surf excel. ‘Qs’ is quantity supplied of a packet of Surf excel.
Requirements:
Solution
Part A
Q_{d}= 1900-6P
Q_{s}= 300+ 20P
Equilibrium price and quantity
We know that at equilibrium is the point where quantity supplied demanded
Q_{s }= Q_{d}
1900-60P =300+20P
60P +20P = 1900- 300
80P= 1600
P = 1600/80
P= 20rs
Putting p in any of the function
Q_{d } = 1900 -60(20)
Qd =1900-1200
Qd =700
Qs= 300+20(20)
Qs = 300+400
Qs= 700
Equiliribrium P =20, Qs = Qd =700
Part B
Price elasticity of supply using point elasticity:
E = dq/ dp X P/Q eq(1)
Pand Q are equilibrium price and quantity given that
Qs = 300+ 20P
Tacking derivative w.r.t P
= dQ_{s} / dP = 20, P = 20,Q =700
Put this value in eq(1)
E= 20x 20/700 =0.571
As supply is point inelastic which means 1 rupees change in price cause 0.571 unit change in quantity supplied.
Part C
If D mart improves its technology the supply will increase. As we know price decreases equilibrium price will decrease increasing the equilibrium quantity.
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