ECO401 assignment No.1 idea solution - (11/1/2011)

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the best idea for your 1st eco401 assignmnet solution>>>>>>>>>>>>>>>>>>>>

The case:

The market for Panadol was initially in equilibrium. The demand and

supply equations for the market of Panadol were:

Qd = 1000 – 200P

Qs = 100 + 400P

After few years, cost of production of Panadol increased due to increase

in price of paracetamol (one of the main ingredient used in the

production of Panadol). Due to this increase people started using

Disprine instead of Panadol. After some time once again rapid increase

in the prices of Panadaol was recorded. This time increase in prices was

attributed to increasing demand of the tablet due to dengue fever. This

trend added to the miseries of dengue patients. To better cope the

situation, measures should be taken to decrease the price of Panadol so

that dengue affected poor patients could afford it.

Solution:

Hint: for your solution

A. Calculation of quantity demand and quantity supply
The given equations are
1. Q (d) =850-15(p)
2. Q(s) =400+30(p)
As we know that the given price of coffee is P = 8 Rs.
So, to find out the quantity demand and quantity supply put the value of price P in above equations.
So, Put price in q (d) and q(s)

Q (d) =850-15(p) Q(s) =400+30(p)

Q (d) =850-15(8) Q(s) =400+30(8)
Q (d) =850-120 Q(s) =400+240
Q (d) =730 Q (s) =640

(a) From the above results, we have to know that this is a
Shortage production of coffee because Q (d) is high and Q(s) is low so, eight (8) is not equilibrium price

(b) If there will be a shortage of production that is, Q (d) will be high and Q (s) will be low, then this shortage of that production will increase price.

B. Calculation of equilibrium price by using above equations
As we know that if Q (d) will be equal to Q(s) the price will be equilibrium
So,

Q (d) =Q(s)
850-15(p) =400+30(p)
850-400=30(p) +15(p)
450=45(p)
p=450/45
p=10 Rs.

So, Equilibrium price =10
Here demand and supply is equal

C. Equilibrium proved

By putting the value of equilibrium price in Q (d) and Q (s) we can prove it.
So,
Q (d) =Q(s)
850-15(p) =400+30(p)
850-15(10) =400+30(10)
850-150=400+300
700=700

Thus proved if p=10 then Q (d) and Q (s) will be equal