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Solution guidelines • The student will work individually and has to writein the

ID: 1239356 • Letter: S

Question

Solution guidelines

• The student will work individually and has to writein the form of

an analytical assignment.

• Give the answer according to question, therewill be negative

marking for irrelevant material.

• Mention the source (bibliography) which you areusing for

preparing your assignment.

• Support your solution with completeworking/calculations/

diagram where necessary. Marks will be deducted ifcomplete

working/calculations/diagram is not shown.

A.

If we examine the market for rice in Pakistan during the year2007 and 2009,

the demand of rice was higher in the year 2007 but it fell downduring the

year 2009, due to the drop in the export demand of rice. Butthe

Government wants to keep the price of rice at higher level.

The given equations show the quantity demanded and quantitysupplied of

rice during the year 2007.

Year 2007: Demand: Qd = 1,600 - 125P

Year 2007 Supply: Qs = 440 + 165P

a. Calculate the market clearing price level and quantity in theyear

2007, in that year there were no effective limitations onthe

production of rice.

b. Why the government wants to keep the price at higherlevel i.e. to

$5.50 when there is decline in export demand. Will it effect onthe

quantity demanded or quantity supplied equation and curve andhow

much?

c. Now with the help of new quantity equation calculate whatshould be

the quantity of rice which the government must buy?

(Marks: 3+2+3+3)

B.

Suppose a profit-maximizing monopolist is producing 800 units ofoutput

and is charging a price of $70 per unit.  

If the marginal cost of last unit produced is 50 what will bethe elasticity of

demand for the product?

(Marks: 4)

Explanation / Answer


b). If the Govt raises the price of rice from $4.00 to $5.50,quantity demanded will go down by 187.5 you just get that byplugging 4 in for P for Qd and 5.5 in for P in Qd and take thedifference. You can do the same for Qs...
c)Plug 5.5 in for P in Qd. = 912.5
B) http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm
b). If the Govt raises the price of rice from $4.00 to $5.50,quantity demanded will go down by 187.5 you just get that byplugging 4 in for P for Qd and 5.5 in for P in Qd and take thedifference. You can do the same for Qs...
c)Plug 5.5 in for P in Qd. = 912.5
B) http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm
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