ECONOMICS

PAPER
Prepare By
Arshad Nizam MBA/3-17/G015

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Course Title: Principles of Microeconomics
Mid Term
Spring Semester- 2020
(Main Campus)

Question 1: (10 Marks)

Define Economics and explain themes of Economics.

Question 2: (10 Marks)

With the help of schedule and diagram explain the supply, demand
and equilibrium.
Question 3: (10 Marks)
Define Law of Diminishing Marginal utility. Explain with help of
diagram.

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Question 1.
Economics.
According to Robbins “economics is a science which studies human behavior
as a relationship besewn multiple needs a scarce means (resource).

Themes of Economics.

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Question 2.
Supply.
Supply is the ability and willingness of a supplier /producer to sell a particular
quantity of good at a specific price over a period of time .
Supply schedule.
Price per pen (Rs) Supply of pen (in Thousand)

5 20
10 40
15 60
20 80
25 100
30

25

20
price per pen

15

10

0
20 40 60 80 100
quantity supplied

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Explanation.
With the help of supply schedule, we have drawn a supply curve on x axis we have
taken quantity supplied and on y axis we have taken price. when the price per pen
was Rs 5/=, the quantity supplied was 20 pens. At this intersection, we made a point.
when price of pen increases to Rs 10/=, the quantity supplied also increase to 40 and
at this intersection point we also made point. In the same way we made three more
points on the intersections. Here we will join curve this is called supply curve.

Demand.
The ability and willingness of a buyer to purchase something at a given price.

Demand schedule.
Price per pen (Rs) Quantity demand of pen (in
Thousand)
5 25
10 20
15 15
20 10
25 5

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 30

25

20
price per pen

15

10

0
5 10 15 20 25
quantity demanded

Explanation.
Demand can be explained with the help if a demand schedule and demand
curve. Demand schedule shows the price per pan and the quantity demanded
on different level of price. When the price per pen was Rs 5/= the quantity
demanded per pen was 25000. When the price increases to Rs 10/= the
quantity demanded decrees to 20000 pens. Hence is proved that if price
increases the quantity demanded decreases.

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Equilibrium.
Equilibrium means when the plans of buyers match the plans of sellers.

Explanation of graph schedule.

Price per pen (Rs) Demand for pens Supply of pens
5 100 20
10 80 40
15 60 60
20 40 80
25 20 100

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Explanation
We can explain the equilibrium of market with the help of the graph. On x-
axis we take quantity supplied and demand on y axis and we take price per
unit. According to the schedule, we make the curve that is called demand
curve. This curve is shown in the graph as. on the other hand, we draw
another curve that is supply curve and its name is S. we can see from this
graph that “e” is the point where the demand curve interests the supply is in
equilibrium because demand and supply are equal. If we go above this point
we can see that supply is greater than the demand therefore, the seller will
reduce the supply until the supply become equal to the emend .similarly
below point “e”, demand is greater than supply so supplier will increase the
supply until demand and supply are equal again at point “e” therefore , we can
conclude that market equilibrium impossible pointe” only, and not above or
below this point.

Law of Diminishing Marginal

utility.
Other things remaining the same the continuous use of units of a commodity gives
less and less satisfaction till it reaches to zero and then becomes negative.
Schedule.
Units of a commodity Total utility Marginal utility
consumed
1 20units 20 units
2 36units 16units
3 48units 12 units
4 56units 8 units
5 60units 4 units
6 60units 0 units
7 56units -4 units

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 70

60 60 60
56 56
50
48

40
36
Price Y

30

2020
16
12
10
8
4
0 0
1 2 3 4 5 6 7
-4
-10

Quantity X

Explanation.
In the above diagram units of the commodity consumed are taken on X axis
marginal utility is initially upward sloping up to point “e” but afterwards it is
constant up to point “f” and then it starts diminishing at point “g” On the other
hand marginal utility slope shows a diminishing trend from point “a” to point

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“I”.at point “I” the marginal utility is zero that means if the consumer uses the
6thint he gets no increase in total utility. Point “m” shows that the 7th yields
negative utility.

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