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ECO402 Microeconomics Assignment No 01 Spring 2019 Solution & Discussion Due Date: 22-05-2019
The Case:
Dates (Khajur) are commonly used at the time of Iftar in the month of Ramadan. Dates
are the perfect diet to break the fast as it activates the body to take in the inflow of food,
by helping to secrete digestive juices. Dates are full of carbohydrates and fiber. The
demand of dates increases in the month of Ramadan, which in turn increases the price
of dates.
Suppose the initial demand and supply equations of dates are given as follows:
Qs = 240 + 0.30P
Qd =300 - 0.20P
In the month of Ramadan, let the demand equation of dates is:
Qd =320 - 0.10P
Requirement:
a) Find the market clearing level of quantity and price of dates before demand change.
b) Find the market clearing level of quantity and price of dates after demand change.
c) Find out the price elasticity of demand of dates at initial equilibrium price and quantity
and interpret the results.
Marks: (3+3+4)
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Dates (Khajur) are commonly used at the time of Iftar in the month of Ramadan. Dates
are the perfect diet to break the fast as it activates the body to take in the inflow of food,
by helping to secrete digestive juices. Dates are full of carbohydrates and fiber. The
demand of dates increases in the month of Ramadan, which in turn increases the price
of dates.
Suppose the initial demand and supply equations of dates are given as follows:
Qs = 240 + 0.30P
Qd =300 - 0.20P
In the month of Ramadan, let the demand equation of dates is:
Qd =320 - 0.10P
Requirement:
a) Find the market clearing level of quantity and price of dates before demand change.
b) Find the market clearing level of quantity and price of dates after demand change.
c) Find out the price elasticity of demand of dates at initial equilibrium price and quantity
and interpret the results.
ECO402 Microeconomics Assignment No 01 Spring 2019 Solution
One more idea solution
ECO402_Microecnomics_Assignment#1 Solution
(a) Market clearing level of quantity and price of dates before demand change:(a) Market clearing level of quantity and price of dates before demand change:Market clearing level equation: Qs=Qd 240+0.30P=300-0.20P0.30P+0.20P=300-2400.5P=60P=60÷0.5P=120Q=240+(0.30P)(120) =276 (b) Market clearing level of quantity and price of dates after demand change:Qs=Qd 240+0.30P=320-0.10P0.03P+0.10P=320-2400.4P=80P=80÷0.4=200Q=240+(0.30p)(200) =300 (C) Price Elasticity of demand of dates at initial Equilibrium price and quantity: Price Elasticity of demand of Dates is = = (-0.20) = -.087 ( inelastic)
Interpretation of the above result:Price Elasticity of Demand measures the sensitivity of quantity demanded to price changes. It measures the percentage change in the quantity demanded for a good or services that result from a one percent change in the price of that good or services.1) Because of the inverse relationship between P and Q; EP is negative.2) If IEPI < 1, the percent change in quantity is less than the percentChange in price. We can say that demand is price inelastic.
+ M.Tariq Malik
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ECO402 Assignment Solution Spring 2019
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