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Microeconomics Saturday mid-term exam(1)

Mid-Term Exam (Take-Home) Fall - 2020
Subject: Microeconomics Saturday
Submission Day: Sunday
Instructor: Dr. Syed Tehseen Jawaid
Submission Date: 29th November, 2020
Mr. Faraz Ur Rehman
Mr. Yasin Turabi
Syed Afaque Hussain
Program: BBA
Max. Marks: 25
Department of Business Administration
Please follow the instructions carefully:
Write your answers in a Word file and upload the file before the due date on BlackBoard.
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Use 12 pt. font size and Times New Roman font style along with 1-inch page margins.
Follow the requirements of the word limit and the marking criteria while writing your
Provide relevant, original and conceptual answers, as this exam aims to test your ability to
examine, explain, modify or develop concepts discussed in class.
Do not copy answers from the internet or other sources. The plagiarism of your answers may
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Recheck your answers before the submission on BlackBoard to correct any content or
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Question 1
Maximum Marks: 05
a) What are the factors you consider to figure out the opportunity cost of a vacation to Gorakh
Hill Station? (1 Marks) (Word count: 100 words max.)
b) Efficiency and equality are examples of classic trade-offs in economics. Analyze each of the
following statements from the standpoints of efficiency and equality.
i. “Amid COVID-19, everyone in society should be guaranteed the best healthcare
possible.” (2 Marks) (Word count: 150 words max.)
“When workers lose their jobs, they should be able to collect Ehsas income support
benefits until they find a new job.” (2 Marks) (Word count: 150 words max.)
Question 2
Maximum Marks: 06
a) Draw hypothetical consumer’s indifference curves for Soft-drink and Pizza. Describe and
explain four properties of these indifference curves. (2 Marks) (Word count: 250 words
b) A student living in a university hostel has two options for meals: eating at the dining hall for
Rs.600 per meal, or eating a meal at Dhaaba for Rs.150 per meal. His weekly food budget
is Rs.6000.
i. Draw the budget constraint showing the trade-off between dining-hall meals and meals at
Dhaaba. Assuming that he spends equal amounts on both goods, draw an indifference curve
showing the optimum choice. Label the optimum as point A. (1 Mark)
ii. Suppose the price of a Dhaaba meal now rises to Rs.200. Using your diagram from part
(a), show the consequences of this change in price. Assume that our student now spends
only 30 percent of his income on dining-hall meals. Label the new optimum as point B. (1
iii. What happened to the quantity of meals at Dhaaba consumed as a result of this price
change? What does this result say about the income and substitution effects? Explain. (1
iv. Use points A and B to draw a demand curve for meals at Dhaaba. What is this type of good
called? (1 Mark)
Question 3
Maximum Marks: 04
a) A change in consumer’s expectations causes a movement along the demand curve or a shift in
the demand curve? Explain. A change in price of the goods results in a movement along the
demand curve or a shift in the demand curve? Explain (2.5 Marks) (Word count: 250 words
b) A demand schedule for a normal good is as follows:
Quantity demanded
i. Do you think that the increase in quantity demanded (say, from 90 to 110 in the table) when
price decreases (from Rs.210 toRs.190) is due to a rise in consumers’ income? Explain
clearly (and briefly) why or why not. (1 Mark)
ii. Now suppose that the good is an inferior good. Would the demand schedule still be valid
for an inferior good? (0.5 Marks)
Question 4
Maximum Marks: 06
a) What can be said about the price elasticity of demand in each of the following statements?
i. “The Tikka delivery business in this town is very competitive. I’d lose half my customers
if I raised the price by as little as 10%.”(1 Mark)
ii. “My economics professor has chosen to use the Mankiw textbook for this class. I have no
choice but to buy this book.” (1 Mark)
iii. “I always spend a total of exactly Rs.1000 per week on coffee.” (1 Mark)
b) A news website reported (Feb. 17, 2020) that ridership of Karachi Metro Bus declined after a
fare increase: “There were nearly four million fewer riders in December 2019, the first full
month after the price of a token increased Rs. 25 to Rs.150, than in the previous December, a
4.3 percent decline.”
i. Use these data to estimate the price elasticity of demand for Karachi Metro Bus. (2 Marks)
ii. According to your estimate, what happens to the Karachi Metro Bus’s revenue when the
fare rises? (0.5 Marks)
iii. Why might your estimate of the elasticity be unreliable? (0.5 Marks
Question 5
Maximum Marks: 04
Income elasticity of demand measures the responsiveness of demand to changes in income.
Explain what is happening to demand and what kind of good is being represented in the following
a) Income is rising, and income elasticity of demand is positive. (1 Mark)
b) Income is rising, and income elasticity of demand is negative. (1 Mark)
c) Income is falling, and income elasticity of demand is positive. (1 Mark)
d) Income is falling, and income elasticity of demand is negative. (1 Mark)