University of Karachi
Note: Avoid giving answers that are longer than few lines (1-6)
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Maria can read 20 pages of economics in an hour. She can also read 50 pages of
sociology in an hour. She spends 5 hours per day studying
a. Draw Maria’s production possibilities frontier for reading economics and
sociology
b. What is Maria’s opportunity cost of reading 100 pages of sociology
Explain each of the following statements using supply and demand diagrams
a. When cold weather hits Karachi the demand of chicken soup rises throughout
the city however producers fail to increase the supply
b. When the weather turn warm in Karachi every summer, the demanded of soup
decreases throughout out the city and producers also decrease the supply by the
same ratio
What happens to the demand of a product X if the price of its complement Y is
increased. Explain with the help of a graph
What happens to the demand of a product X if the price of its substitute Y is decreased.
Explain with the help of a graph
For each pair identify whether they are complements or substitutes
a. DVDs and TV Screens
b. DVDs and Movie Tickets
c. TV Screens and Movie Tickets
Suppose that the price of basketball tickets at your college is determined by market
forces. Currently the demand and supply schedules are as follows
Price
Quantity Demanded
Quantity Supplied
$4
10,000 Tickets
8,000 Tickets
$8
8,000 Tickets
8,000 Tickets
$12
6,000 Tickets
8,000 Tickets
$16
4,000 Tickets
8,000 Tickets
$20
2,000 Tickets
8,000 Tickets
a. Draw the demand and supply curves. What is unusual about this supply curve.
Why might this be true?
b. What are the equilibrium price and quantity of tickets?
Suppose that business travellers and vacationers have following demand for airline
tickets from New York to Boston:
Quantity Demanded
Quantity Demanded
Price
(Business Travellers)
(Vacationers)
150 $
2100
1000
200
2000
800
250
1900
600
300
1800
400
University of Karachi
a. As the price of tickets rises from 200 to 250, what is the Price elasticity of
demand for (Use the midpoint method in your calculations)
i. Business Travellers (2)
ii. Vacationer (2)
b. Why might vacationers have a different elasticity from business travellers (2)
8) Price ceiling set above the equilibrium price has no effect and Price ceiling set below
equilibrium price results in shortage. Explain this phenomenon with the help of a graph.
9) Assume that the price elasticity of demand for apples is 2.4 and elasticity of supply for
apples is 0.5. The government has imposed a tax of Rs. 100 per ton. Which one of the
two parties, buyers and sellers, is likely to bear the bigger share of this tax? And Why?
10) The total product schedule of pens produced by a firm is:
workers
Output
(pens)
1
1
2
3
3
6
4
10
5
15
6
21
7
26
8
30
9
33
10
35
Suppose that the price of a worker is Rs. 4,000 a week, the
total fixed cost is Rs.10,000 a week.
a) Calculate total cost, total variable cost and total fixed
cost for each level of output
b) Draw the total cost, total variable cost and the total
fixed cost curves
c) Calculate average total cost, average fixed cost, and
marginal cost at each level of output