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ECO401 Economics Assignment No 01 Spring 2019 Solution & Discussion Due Date : 16-05-2019

ECO401 Economics Assignment No 01 Spring 2019 Solution & Discussion Due Date : 16-05-2019

SEMESTER SPRING 2019
ECONOMICS (ECO401)
ASSIGNMENT
DUE DATE: MAY 16, 2019
MARKS: 10
ASSIGNMENT:
The Case:
Pakistan cement industry has shown very fast progress in last few years and has
become a leading sector of the economy. At the time of inception, there were only
four cement plants in Pakistan which has now grown to over 30 units. Cement
manufacturers have also expanded their production capacity to meet higher demand
because of construction projects and CPEC. Maple Leaf Cement Factory Limited is
a reputable largest manufacturer of cement in Pakistan. The company was set up in
1956. Suppose the quantity demanded and quantity supplied functions of cement
industry in starting week of current month are:
Qd = 5000-6P
Qs= 1500+P
Where ‘P’ is the price in rupees per bag of cement and ‘Qd’ is quantity demanded of 
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Solution:-
Q1.
Qd=Qs
5000-6P = 1500+P
5000-1500=P+6P
3500=7P
3500/7=7P/7
P=500
Putting the value of price in any of demand and supply equation
Q=5000 -6(500) or 1500+500
Q=2000
The equilibrium price is 500 and the equilibrium quantity is 2000
Q2. Qd = 5000-6P
dQ /dP= -6
The formula of elasticity = (dQ / dP) (P/Q)
= (500/2000)*(-6) =-1.5
Its absolute value (ignoring minus sign) is greater than one so it is point elastic

Q3. Subsidies for producers increase supply and the quantity demanded by consumers. The government provides production subsidies whenever it is in the interest of the public in order to meet demand. As the producer increases supply, the cost of production is reduced, allowing the supplier to profit from both the subsidy and lower costs. As the result prices also decreases of
Cement products in domestic market
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ECO401-Assignment-no-01-Solution-Spring-2019

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Assignment No.1
Eco401
Solution:-
Q1.
Qd=Qs
5000-6P =1500+P
5000-1500=P+6P
3500=7P
3500/7=7P/7
P=500
Putting the value of price in any of demand and supply equation
Q=5000 -6(500) or 1500+500
Q=2000
The equilibrium price is 500 and the equilibrium quantity is 2000
Q2.
Qd = 5000-6P
dQ /dP= -6
The formula of elasticity = (dQ / dP) (P/Q)
= (500/2000)*(-6) =-1.5
Its absolute value (ignoring minus sign) is greater than one so it is point elastic
Q3.
Subsidies for producers increase supply and the quantity demanded by consumers. The government provides production subsidies whenever it is in the interest of the public in order to meet demand. As the producer increases supply, the cost of production is reduced, allowing the supplier to profit from both the subsidy and lower costs. As the result prices also decreases of
Cement products in domestic market

ECO401 Assignment#01 Solution Spring 2019

 

 

 

 

solution Idea of question 3

Effects of Supply Subsidies. When the government provides a supply-side subsidy to the producers of a product, the supply curve shifts to the right and the demand curve remains the same. Depending on elasticity of demand, the effect is to reduce price and increase output.
Effect of a Subsidy. A subsidy generally affects a market by reducing the price paid by buyers and increasing the quantity sold. Subsidies are usually pareto inefficient because they cost more than they deliver in benefits. ... The buyers, who now pay a lower price, gain area B in consumer surplus.

Note: Change into your own words... its not a answer its an idea solution

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