“Economics (ECO401)” Assignment No.01 Solution

Question:
Suppose the market demand and market supply for coffee is given by the following equations:
Qd = 850 – 15P
Qs = 400 + 30P


A. Find quantity demanded and quantity supplied when the price of coffee is Rs. 8. Is there a surplus or shortage in the production of coffee? What should happen to the price of coffee?

Solution:

Quantity Demanded
Qd = 850-15P
Qd = 850-15(8)
Qd = 850-120
Qd = 730

Quantity Supplied
Qs = 400+30P
Qs = 400+30(8)
Qs = 400+240
Qs = 640


B. Find the equilibrium price for coffee by using given demand and supply equations.

Solution:

At equilibrium price,
Qd = Qs
850-15P = 400+30P
850-400 = 30P+15P
450 = 45P
P = 450/45
P = Rs.10

C. Prove that the price found in part (B) is an equilibrium price.

Qd = Qs

850-15P = 400+30P
850-15(10) = 400+30(10)
850-150 = 400+300
700 = 700

Hence proved Qd = Qs so equilibrium price is Rs.10.


D. Show the equilibrium condition in coffee market graphically.

Solution