INSTITUTE OF PROFESSIONAL PSYCHOLOGY
BAHRIA UNIVERSITY (KARACHI CAMPUS)
Midterm Assessment Assignment Spring 2020
BS PSYCHOLOGY
Microeconomics
Class: BS 2 (A, B, C)
Course Instructor: S.M Ahsan Rizvi & Faisal Saleem
Due Date:
Morning
31.05.2020
Max Marks: 15
Student’s Name: ____________________
Reg. No: ________
Question # 1
Production point
A
B
C
D
E
Pages typed
0
40
70
90
100
and
and
and
and
and
Web pages created
4
3
2
1
0
(a) Jean can either type her term paper or create Web pages during the limited time she has available. The
table above shows her PPF.
[02]
(i) Can Jean type 90 pages and create 2 Web pages?
(ii) Use the above numbers to calculate the opportunity cost of a typed page as she increases her time
typing and decreases time creating a Web page.
(b) Mary takes 4 minutes to make a sandwich and 6 minutes to mix a cocktail. Her sister Ash takes 4
minutes to make a sandwich and 4 minutes to mix a cocktail. Calculate each sister's opportunity cost. Which
of the two sisters has an absolute advantage in making sandwiches? In mixing cocktails? Which of the two
has a comparative advantage in making sandwiches? In mixing cocktails?
[01]
(c) "If an economy is producing at a point on its PPF, it has achieved allocative efficiency." True or false?
Explain.
[01]
(d) What is the relationship between the bowed out shape of the production possibilities frontier and the
increasing opportunity cost of a good as more of it is produced?
[01]
Question # 2 Jane is deciding whether to go to school for 8 weeks this summer. The cost of tuition and textbooks
is $1,700 and housing and other expenses will cost her $600. If she does not go to school, she will live in her parents'
house for free and they will cover her food and other expenses for her. Also, if Jane does not go to summer school she
could work fulltime. But the best job she can get pays only $600 per week, and Jane would only agree to give up her
free time for no less than $750 per week. However, if she goes to summer school, she'll have to spend 40 hours a week
attending classes and studying.
[02]
(i) What will the summer school cost Jane in terms of money spent?
(ii) What are the opportunity costs of going to summer school that Jane does not pay explicitly? Explain.
(iii) What is Jane's total opportunity cost of going to school this summer? Explain your answer.
(iv) Suppose Jane decides to go to school in the summer. Explain her decision using the concepts of marginal cost
and marginal benefit.
1
Question # 3 Table 1
Price per
Bushel
$3
6
9
12
15
18
21
24
[04]
Quantity Demanded
(bushels)
36,000
30,000
24,000
19,000
15,000
10,000
7,000
4,000
Quantity Supplied
(bushels)
0
3,000
6,000
10,000
15,000
21,000
28,000
36,000
Refer to Table 1. The table contains information about the corn market. Use the table to answer the following
questions.
(i) What are the equilibrium price and quantity of corn?
(ii) Suppose the prevailing price is $9 per bushel. Is there a shortage or a surplus in the market?
(iii) What is the quantity of the shortage or surplus?
(iv) How many bushels will be sold if the market price is $9 per bushel?
(v) If the market price is $9 per bushel, what must happen to restore equilibrium in the market?
(vi) At what price will suppliers be able to sell 24,000 bushels of corn?
(vii) Suppose the market price is $21 per bushel. Is there a shortage or a surplus in the market?
(viii)
What is the quantity of the shortage or surplus?
Question # 4
(a) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity
of demand for complements is negative.
(b) Explain why the price elasticity of demand changes along a linear demand curve.
[01]
[01]
(c) Table 2
[02]
Income
$30,000
50,000
Prices
Px = $6, Py = $3
Px = $6, Py = $4
Quantities
Purchased
Good X
2
5
Quantities
Purchased
Good Y
20
10
Refer to Table 2.
(i) Using the information in the table, calculate the income elasticity of demand for good X and characterize the
good. Use the midpoint formula.
(ii) Can you calculate the income elasticity of demand for good Y? If you can, show your calculation and
characterize the good. If you cannot, explain why.
______________________x______________________
2