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ECO 401 Assignment Solution:
Demand function for wheat crop
Qd =15000-30p+p2
Demand function for sugarcane crop:
Qd
=12000-20p+2p2
Q1.
a) If market price of wheat is Rs.1300 per
ton Qd =15000-30p+p2
Qd=15000-30(1300) + (1300)2
Qd= 15000-39000+1690000 Qd=1666000 dQ / dP= -30+2P dQ/dP
=-30+2(1300) dQ/dP = 2570
The formula of elasticity = (dQ / dP) (P/Q)
=2570*(1300/1666000)
=2.01
b. If market price of sugarcane is Rs. 180 per ton.
Qd =12000-20p+2p2
Qd =
12000-20(180) +2(180)2
Qd =12000-3600+64800 Qd = 73200
dQ / dP= -20+4p dQ / dP= -20+4(180) dQ / dP=
-20+720 dQ / dP=700
The formula of elasticity = (dQ / dP) (P/Q)
=700*(180/73200)
=1.72
Q2.
Subsidies for producers increase supply and the quantity demanded
by consumers. The government provides production subsidies whenever it is in
the interest of the public in order to meet demand. As the producer increases
supply, the cost of production is reduced, allowing the supplier to profit from
both the subsidy and lower costs. As the result prices also decreases of Agricultural products in domestic
market
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