Eco 401 Idea solution

Assignment No.01 Marks: 20

Question:

Suppose the market demand and market supply for Levis jeans is given by the following equations:

Qd = 5000 – 2.5P

Qs = 4000 + 1.5P

A. Find quantity demanded when price is Rs. 250, Rs. 450 and Rs. 650.

Quantity demand is found by putting the values of P in quantity demand equation.

1. When the price is Rs.250

Qd = 5000 – 2.5P

Qd = 5000 – 2.5(250)

Qd = 4375 units

2. When price is Rs.450

Qd = 5000 – 2.5P

Qd = 5000 – 2.5(450)

Qd = 3875 units

3. When price is Rs.650

Qd = 5000 – 2.5P

Qd = 5000 – 2.5(650)

Qd = 3375 units

B. Find quantity supplied when price is Rs. 200, Rs. 400 and Rs. 600.

Quantity supplied is found by putting the values of P in quantity supplied equation.

1. When the price is Rs.200

Qs = 4000 + 1.5P

Qs = 4000 + 1.5(200)

Qs = 4300 units

2. When price is Rs.400

Qs = 4000 + 1.5P

Qs = 4000 + 1.5(400)

Qs = 4600 units

3. When price is Rs.600

Qs = 4000 + 1.5P

Qs = 4000 + 1.5(600)

Qs = 4900 units

C. Find equilibrium price and equilibrium quantity with the help of above equations.

The equilibrium price for Levis jeans is found by equating Qd and Qs.

At equilibrium, the quantity demand and quantity supply must equal

Qd=Qs

5000 – 2.5P= 4000 + 1.5P

5000-4000=1.5P+2.5P

1000=4P

P=1000/4=250Rs.

Equilibrium price =Rs.250

Equilibrium quantity can found by putting this price in equation of quantity demand or quantity supply

Qs = 4000 + 1.5P

Qs = 4000 + 1.5(250)

Qs = 4375 units

Note:

At equilibrium, at equilibrium, the quantity demand and quantity supply must equal

Qd=Qs

Equilibrium price at 250

5000 – 2.5(250) = 4000 + 1.5(250)

4375 units=4375 units

D. Show the equilibrium condition in Levis jeans market graphically.