ASSIGNMENT

MICROECONOMICS (ECO402)

(a) Market clearing level of quantity and price of sugarcane. Also show
equilibrium condition graphically.

Qs = 27 + 0.25P Qd =75 - 0.15P

27 + 0.25P =75 - 0.15P

0.15P + 0.25P =75-27
0.40P=48
P=48÷0.40

P=RS.120

Q = 27 + 0.25P
Q=27+0.25×120
Q=27+30

Q=57

(b) Find out the price elasticity of demand and price elasticity of supply of
sugarcane at equilibrium price and quantity.

EDP =P/Q× Change Q / Change in P=120/57× (-0.15) =-0.3157

ESP =P/Q× Change Q / Change in P=120/57× (0.25) =0.5263

c) If the government wants to strictly implement the support price P = Rs.

180, then how much amount of shortage or surplus would occur?

Qs = 27 + 0.25×180 Qd =75 - 0.15×180

Qs=27+45 Qd=75-27
Qs=72 Qd=48
There will be surplus of 72-48=24