ECO401 Assignment 1 Solution Fall 2021

 

ECO401 Assignment 1 Solution Fall 2021

Requirement 1
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
Putting the value of price in any of Qd or Qs equation for finding “Equilibrium Quantity”
In this solution file I have put value of price in both Qd and Qs equations. So you have to choose any of
one equation.
Qd = 20,000 – 3(1000)
Qd = 20,000 – 3,000
Qd = 17,000
Qs = 15,000 + 2(1000)
Qs = 15,000 + 2000
Qs = 17,000
The equilibrium price “P” is Rs.1000 & equilibrium quantity is Rs. 17,000

Requirement 2
Calculate price elasticity of supply using point elasticity method when 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
As we know that,
PЄs=PercentagechangeinQuantitySupplied/PercentagechangeinPrice 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 3
What will happen to the equilibrium quantity and equilibrium priceof renewable energy resources if
energy sector improves the technology? (Graph is not required)
Solution
If energy sector improves the technology, then, equilibrium quantity will increase and equilibrium
price will decrease. As well as effect on supply will increase and it shift Rightward in direction of shift
in supply curve.