ECO402 VU Assignment No. 1 Spring 2012 Solution

The Case:

Japan is a big manufacturer of MP3 players and its instruments. It exports this product in other countries like India, USA and Pakistan etc. The demand and supply equations of MP3 players in Japan are Qd = 1900 – 7P and Qs = 1300 + 17P respectively. The quantity supplied and quantity demanded of MP3 players at different prices in Japan are given below.

Price (Rs.) Quantity demanded (units)  Quantity supplied  (units)
10                    1830       1470
20                  1760       1640
30                  1690         1810

Suppose China produced MP3 players at cheaper rate than Japan and exported a large number of MP3 players to Japan which has affected the production and consumption of MP3 players in Japan. Domestic industry of Japan faced a lot of challenges after this import. Government of Japan discussed this matter with the economists and took serious actions for the betterment of domestic industry.

Requirements:

Part A:
Use the above data and calculate:

a) Equilibrium price of MP3 player in Japan.
b) Price elasticity of demand when price decreases from Rs.20 to Rs.10.

Part B:
a) Graphically illustrate how the above stated situation will affect the equilibrium price and equilibrium quantity for MP3 players in Japan?
b) Being an economist, suggest the possible measures for the betterment of domestic industry.

 

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