ECO402 Assignment Solution

Question 01:
Suppose the supply and demand equations for market of rice in year 2009 are:
Qs =1500+200P
Qd = 3000 – 210P
A. Calculate the equilibrium price and equilibrium quantity of rice for 2009.
Solution

Qs = Qd
1500 + 200 P = 3000- 210 P
200 P+210P = 3000-1500
410P = 1500
1500
P=
410
P = 3.658

Quantity Supplied is given by:

Qs = 1500 +200 P
Putting the value of “P”
Qs 1500 + 200 (3.658)
Qs = 2231.7

Quantity Demanded is given by:

Qd = 3000 – 210 P
Putting the value of “P”
Qd = 3000 – 210(3.658)
Qd = 2231.7
Equilibrium is at price 3.658 with quantity 2231.7

B. Calculate the elasticity of demand and elasticity of supply; what do you conclude
from these answers whether these are elastic or inelastic.
Solution:
Solution:
Ed = -210*3.65/2232
= -0.34426
Inelastic
Es = 200*3.659/2232
= 0.327867
Elastic
Question 02:
The following table shows the quantity of apples consumed and total utility derived
from consuming these apples.
Quantity of Apples Consumed
 Total Utility
Quantity of Total
Apple Consumed Utility
0 0
1 8
2 14
3 18
4 20
5 20
A. From the information given in above table, calculate the marginal utility at each
point.

Solution:
Quantity of Total Marginal Utility
Apple Consumed Utility
0 0 0
1 8 8
2 14 6
3 18 4
4 20 2
5 20 0

B. Draw total utility curve and marginal utility curve for consuming apples and
interpret what is the relationship between total utility and marginal utility of apples.

Solution:

20

16

12

0 1 2 3 4 5 Q

MU
8
6

0 1 2 3 4 5 Q