ECO401 Assignment 1 Solution Fall 2021

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ECO401 ASSIGNMENT 1 SOLUTION FALL 2021

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Due Date: 9 Dec 2021

Requirement A:

Calculate the equilibrium price and equilibrium quantity of renewable energy resources.

Solution:

Qd = 20,000 - 3P -----(I)

Qs = 15,000 + 2P-----(II)

Qd = Qs

20,000 – 3P = 15,000 + 2P

20,000 – 15,000 = 2P +3P

5,000 = 5P

5,000 / 5 = 5P/5

1000 = P

P = 1000

Then, Putting the value of price in any of Qd or Qs equation for finding “Equilibrium Quantity”

According to Qd Equation:

Qd = 20,000 – 3(1000)

Qd = 20,000 – 3,000

Qd = 17,000

According to Qs Equation:

Qs = 15,000 + 2(1000)

Qs = 15,000 + 2000

Qs = 17,000

The equilibrium price “P” is Rs.1000 & the equilibrium quantity is Rs. 17,000.

Requirement B:

Calculate the price elasticity of supply using point elasticity method when the renewable energy sector is in equilibrium. Also, interpret the result.

Solution:

Qs = 15,000 +2P

d/dP (Q) = d/dP (15,000 + 2P)

dQ/dP= d/dP(15,000) + d/dP (2P) dQ/dP= 0+2

dQ/dP=2

we know that,

PЄs=Percentagechange in Quantity Supplied/ Percentagechange in Price PЄs = dQ/dP x P/Q

PЄs = 2 x 1000/17,000 PЄs = 2000 x 17,000

PЄs = 0.11 0r 11%

So, this is Inelastic.

Requirement C:

What will happen to the equilibrium quantity and equilibrium price of renewable energy resources if the energy sector improves the technology? (Graph is not required)

Solution:

If the energy sector improves its technology, then, equilibrium quantity will increase and equilibrium price will decrease.

As well as the effect on supply will increase and it shifts Rightward in direction of the shift in the supply curve.