Mohammad Ali Jinnah University Karachi

Assignment No.1

Student’s Name: __________________Class-ID no:

Class: BBA (Fall 2019) Issue Date:22-10-2019
Assigned Marks for Assignments:15 Submission Date: 29- 10-2019
Timing: 90 minutes Assigned Marks of this
assignment:7.5
Subject: Microeconomics (DM) Instructor: Dr. Hina Fatima_________
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ASSIGNMENT NO.1
SECTION I.
1) Suppose that scientists find evidence that proves chocolate pudding lowers cholesterol.
We would expect to see
a. no change in the demand for chocolate pudding.
b. a decrease in the demand for chocolate pudding.
c. an increase in the demand for chocolate pudding.
d. a decrease in the supply of chocolate pudding.

2) An advance in production technology will

a. increases a firm's costs.
b. allow firms to raise the price of their product.
c. shift the supply curve to the right.
d. Both a and b are correct.

3) If an individual’s demand for frozen dinners increases when the price of steak rises, we would
infer that:
a. steak is a normal good and frozen dinners an inferior good for this person.
b. steak and frozen dinners are substitutes for this person.
c. this individual’s limit prices for steak have fallen.
d. steak and frozen dinners are complements for this person.

SECTION II.
1. What is the connection between elasticity and total revenue?
2. How do substitute and complementary goods affect the demand for a good.?
SECTION II.
 Mohammad Ali Jinnah University Karachi
Assignment No.1

1. The demand curve and supply curve for two-bedroom apartments in Karachi are
given in the table below.

Price Quantity Demanded Quantity Supply

$800 100 500
$750 200 500
$700 300 450
$650 400 400
$600 500 300

a. Graph the market for two-bedroom apartments in Karachi. Label the equilibrium
b. Suppose that landlords are required to pay $100 per apartment in a renter’s tax to the
city government. Use supply and demand analysis to determine the incidence of the tax.
c. Now suppose that this tax is paid by the demanders of the apartments rather than the
suppliers. Label the new equilibrium C.
d. Use supply and demand analysis to determine the incidence of the tax. Is this incidence the same
as in (b)?
2. Suppose that you have been hired as an economic consultant by OPEC and given the following
schedule showing the world demand for oil:

Price Quantity Demanded

(Millions of barrels/day)
10 60
20 50
30 40
40 30
50 20

Your advice is needed on the following questions:

a. If the price rises from $20 to $30 a barrel, will the total revenue from oil sales increase or
decrease? b. What will happen to total revenue if the supply of oil is decreased further and the price
rises to $40 a barrel?
c. What is the price that will achieve the highest total revenue?
d. What quantity of oil will be sold at the answer to (c)?
e. What are the values of the price elasticity of demand for price changes of $10 a barrel at average
prices of $15 and $45?
f. What is the elasticity of demand that maximizes total revenue?
g. Over what range of prices is the demand for oil inelastic?

3. One of the hair dressing salons is planning to increase the price of men’s trim from $8 to $10,
they expect that weekly demand will fall from 500 to 450 customers per week, what would be the
Price Elasticity of Demand (PED).
4. If the owner of an ice cream store in Karachi charges $1.20 for an ice cream cone her total
revenue is $540 per day. If she lowers the price to $1.00, total revenue falls to $500 per day. What
would be the T demand for ice cream in Karachi?
 Mohammad Ali Jinnah University Karachi
Assignment No.1

5. A consumer’s annual income increases by $200, causing a 10% increase in the number of units
of salmon the consumer demands. If the consumer has an income elasticity of demand for salmon
of 1, what is her new income?