Question

1. Define equilibrium. Solve the following system of equations for equilibrium:

Q(D)=200-10Pàhow would you rewrite this such that p is a function of Q?

Q(S) = 50+5P

What are the supply and demand elasticities in equilibrium? Suppose your boss wants to increase the price of this good by 1 percent? How will this impact the quantity demanded?

2. Define budget constraint. Define indifference curve? Define marginal rate of substitution? What is the relationship between the slope of the indifference curve and the slope of the budget constraint in equilibrium? Describe what this means using words and economic ideas?

3. Suppose that the Corona virus shuts down auto parts production in China. Suppose that these parts are necessary for car production, and can be produced in the US, but at a higher cost. What are the impacts on the new car market? How would this impact the used car market?

Answer 1

1) Equilibrium is that point where demand of & good and supvicies will be equalto supply of good and sunvices... In mathematical tenom D(P) = S(P) D(P) Demand for goods and survices which is the funtion of price... spt supply of goods and survices which is also the funtion of price. Therefore, in the equilibrium 200-l op = 50+.5p op 15 p = 150 on ė : 10 Therefore, in the equilibrium, price = 10 and quantity demand - quantity supply = 200-10x10 If up' is the funtion of a then the given equation look like 0 (0) - 200-20p (0) non - 20P(9) - 9(0) - 200 ar PCO) - 10 - 260-_ (***) . and are funtion look like. 918) = 50+5p .. or sp =- 8(5) -50 or po 913) 0 -

Elasticity of supply due to change in the price PS = YL = 05 a (sot 5p) = 5 How as Elasticity of demand does to chang en price leto bo lox rd do d (800diop) de d po absolint value of But here to be will take only the only the So at the equilibrium supply elasticities=0.5 Demand y al 1 Here, Demand elasticity is unity.ie et & price of goods increased by 1%. then quantity demand fall by l%. Question No. 2: Deffination of budget constraint: - A budget line is defined on the purchasable Combination of two goods, given the price of the bach good and comamen's income. There the beadget constraint describes the different amount of two commodities that a MARIA Caree.me. Can affond. In mathematiast form M Px. X + PyY My To tal money income Pyt Price of the gordy. By Pire of the good y 4 Tozat frantity before * Total grantity of good y... k idole

AS . . Detination of indifference curve : - An indifference curve is a graph showing Combination of two goods that give the Consumen eguale satisfortion and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points given him the same utility, Description: Graphically the indifference Curre is drawn as a downward sloping sh Conver to the origin. The groaph sh shows a a combination of two goods Consumer Corsemes, Ovoda - Indifference curre u shores same levele un y curre curve . Eremy point Gooth the on equal level of satisfaction. Deffination of marginal rate of substitution: marginal rate of substitution is the mate at which . a Coniummen can give tep some. amount of one good in the exchange for another good while main ta ning the same level of utility. It is basically the slope of the in difference cunve..

Then relationship between slope of the indifference eurre and slope of the budget constraint in equilibrium In the equilibrium slope of the budget constraint should be equal to the slope of the indifference carve.ie MR. S xy = Mux/Muy = Pz/py to where Pxt price of Good 't Py + price of goody Muxt Marginal entility of goodly Muyt Manginal utility of good y substitution MRSxy & Marginal rate of of -X fonly! Where 'x' and 'y' are two goods, Economic ideas come form equation 99:- - Bugged constraint line 0 W MP curve and buggest At point LA curve and begrest constraint line: tangent to each other. It the consuminen puchare the commodity bundle h' then 'he' on she can maximise his or her total utility subfeet to the budget constraint,

movie Question No - 3- Messony part of the can producing in us at hig hen Costi ie the cast of input for the Cap prooduction has incrised which will lead to increase the price of the new can. That will reduce demand of the new can along the demand curve. that the Therefore 98 9 grophica demande quantity to substitint go then peope for the market a one graphically we have seen y demanded of new can has reduced dur increase in price. now used can and new car ane moneonless substitiut good, Due to increase in the price of newcas, then people demand shifts to used can ie Demand for the used cars will Then increased. a wred wile. can market be expanded.