Download Federal Urdu University

Institute of Business Management
Principle of Microeconomics
Semester I
Course Instructor:
Irfan Lal
Due Date: Before first hourly exam
Total Marks:100
Assignment No.1
1,
Show how the demand curve for tea might be affected by the following variables
a) An increase in the price of coffee.
b) A decrease in the price of tea.
c) A decrease in consumers’ income
d) Increase in the price of sugar.
e) Consumers prefer to drink more cocoa rather than tea
2,
Show how the supply curve will be affected by the following factors
a) Increase in car prices
b) Technological improvement in car production
c) Increase in wages
3, The following is some information about good X markets :
Price
Q
S
Qd
1
52
65
2
60
60
3
68
55
4
76
50
5
84
45
a) What is the equilibrium price and quantity?
b) If the government imposes a maximum price on that product equals to 1 kg per unit,
explain what will happen in this market? Draw a simple graph to explain the maximum
price effect.
c) If the government imposes a maximum price on that good equal to 4 kg per unit, what
will happen in that market?
4, Suppose you have the following equations :
d
S
Q

200

2
P
and
Q


200

10
P
a) What is the equilibrium price and quantity?
b) If P = kg 45, is there a shortage or surplus? How big?
c) If P = kg 25, is there a shortage or surplus? How big?
5,
a) Define.
I) Economic, II) Scarcity & Choice III) law of demand.
b) Differentiate
I) Positive and Normative Economics II) Microeconomics & Macroeconomics
III) Command, Market and Mixed Economy
Q# 6 Explain Price ceilings and price flooring also analyses the effects of both
action on market?
Q#7 Define Elasticity, its types and possibilities?
Q#8, Consider following data
Price
$7
$8
$9
$10
$11
Quantity Demanded
200
180
150
110
60
Quantity Supplied
50
90
150
210
250
a, Draw graph, show market equilibrium
b, Find Elasticity of demand at each possible point
c, Find Elasticity of Supply at each possible point
d, Find point elasticity of demand and supply where price equal to 11
Q#9: Define consumer surplus, producer surplus with the help of an example?
Q#10 Multiple Choice Questions. Select any one answer with reasoning?
i)
The law of demand states that:
a. as the quantity demanded rises, the price rises
b. as the price rises, the quantity demanded rises
c. as the price rises, the quantity demanded falls
d. as supply rises, the demand rises
Figure # 1
Questions I-III is based on the figure # 1
i) If the initial demand and supply curves are D1 and S1, the equilibrium price and quantity are
a.
b.
c.
d.
OP2 and OQ3
OP1 and OQ2
OP2 and OQ1
OP3 and OQ2
ii). If the demand curve shifts from D1 to D2, one could say that
a.
b.
c.
d.
the quantity demanded has decreased to Q1 and price has fallen to P2 .
there had been an increase in demand for X.
the price of a good which is a substitute for X must have fallen.
the higher price of X (P3) has caused the quantity demanded of X to fall from OQ to OQ
.
iii) A shift in supply from S2 to S1 might be caused by
a.
b.
c.
d.
the costs of producing good X rising.
a decrease in the price of X.
a decrease in demand for X
an improvement in the technology of producing good X
iv). If the cross elasticity of demand between the two products is 6.0, then
a.
b.
c.
d.
e.
the two products are substitutes.
the two products are complements.
the two products are unrelated.
one of the products is expensive and one is inexpensive.
both of the products are inferior.
v) When will an increase in price lead to an increase in total revenue?
a.
b.
c.
d.
e.
When demand is elastic
When demand is unitary elastic
When the cross-price elasticity is negative
When demand is inelastic
When income elasticity is positive
vi). Suppose that as the price of a good rises from $3.90 to $4.10, the quantity demanded falls
from 210 to 190. Then the price elasticity of demand is:
a.
b.
c.
d.
0.5
0.8
1.25
2