ECO606 ASSIGNMENT 1 SOLUTION FALL 2023 | ECO606 ASSIGNMENT 1 SOLUTION 2023 | ECO606 ASSIGNMENT 1 2023 | MATHEMATICAL ECONOMICS - I | VuTech

Visit Website For More Solutions
www.vutechofficial.blogspot.com

KINDLY, DON’T COPY PASTE

Question:

The Case: 

Rice is very important crop of agriculture sector in Pakistan which is used for domestic consumption as well as for exports. Variety of rice i-e basmati, nonbasmati, super kernel, etc. are produced in Pakistan. Rice production is dependent on many factors like weather conditions, water availability, seeds, pesticides, fertilizers, etc.  Suppose Ahmed Rice Mills have the following demand and supply functions for their rice production.  

Qd = 3500 – 2P 

Qs = 1500 + 3P 

Requirement: 

1. Find out the equilibrium price and equilibrium quantity from the given demand and supply functions.  
2. Suppose government imposes tax of Rs. 150 on fertilizers. The supply function now becomes Qst = 1500 + 3(P-150).  Find out the new price and new quantity supplied after imposition of tax.  
3. Calculate the total revenue before and after imposition of tax. 
4. What is the impact on price, quantity supplied, and total revenue after imposition of tax? 

Solution:

Part 1: Equilibrium Price and Quantity

The equilibrium is achieved when the quantity demanded (Qd) equals the quantity supplied (Qs). (Qs).Set Qd = Qs and solve for P.

Given:

Qd = 3500 − 2P 

Qs = 1500 + 3P

3500 − 2P = 1500 + 3P

Combine like terms: 

5P=2000

Solve for P:

P = 2000 / 5 = 400

Now substitute this P back into either the demand or supply equation to find the equilibrium quantity. Let's use the demand equation:

Qd = 3500 − 2P 

Qd = 3500 − 2(400) = 2700

So, the equilibrium price (P) is 400 and the equilibrium quantity (Q) is 2700.

Part 2: New Price and Quantity Supplied after Tax

Given the new supply function after the tax: 

Qst = 1500 + 3(P − 150)

Substitute P = 400 into the new supply function:

Qst = 1500 + 3(400−150)

Qst = 1500 + 3(250)

Qst = 1500 + 750

Qst = 2250

So, the new quantity supplied (Qst) after the imposition of the tax is 2250.

Part 3: Total Revenue before and after Tax

Total Revenue (TR) is given by the product of price and quantity.

Before tax:

TR_before ​= P × Q

 

TR_before ​= 400 × 2700

 

After tax:

 

TR_after ​ = P × Qafter tax​

 

TRafter  = 400 × 2250

Calculate both values.

Part 4: Impact on Price, Quantity Supplied, and Total Revenue

Compare the values of price, quantity supplied, and total revenue before and after the tax to analyze the impact. Also, discuss the economic implications of the tax on the market.

KINDLY, DON’T COPY PASTE
SUBSCRIBE, SHARE, LIKE AND COMMENTS FOR MORE UPDATES
SEND WHATSAPP OR E-MAIL FOR ANY QUERY
0325-6644800
kamranhameedvu@gmail.com
Visit Website For More Solutions
www.vutechofficial.blogspot.com