ECO401 Assignment 1 Solution Fall 2021 Complete Solution

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ECO401 Assignment 1 Solution Fall 2021 Complete Solution

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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=Percentagechange inQuantitySupplied/Percentage change inPrice 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 price of renewable energy resources if energy sector improves the technology? (Graph is not required)

Solution

There are two situation that we must have to consider one is equilibrium price with improvement of technology and other is equilibrium quantity.

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.

Generating electricity using renewable energy technologies is more costly than other. be as great if cost increases also improved the competitiveness of energy is also a factor that is affecting these conditions.

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