Question Question-1: Suppose that y

07 Jun Question Question-1: Suppose that y

Question
Question-1: Suppose that you have been hired as an Economic Researcher by OPEC and given the following schedule showing the world demand and supply for oil:

(5 marks)

Price (P) ($/barrel)

Quantity Demanded (Qd)

(millions of barrels/day)

Quantity Supplied (QS)

(millions of barrels/day)

10

60

20

20

50

30

30

40

40

40

30

50

50

20

60

Answer the following questions:

a. At what price, the oil market will be in equilibrium situation?

b. If OPEC produces 50 million of barrels/day, calculate its Total Revenue (TR)?

c. If the price of oil rises from $40 to $50 per barrel, what will be the Total Revenue (TR) from oil sales? Also mention either TR will increase or decrease?

d. When the price changes from $30/barrel to $40/barrel, calculate Price Elasticity of Demand (Ed)?

e. When the price changes from $30/barrel to $40/barrel, calculate Price Elasticity of Supply (Es)?

Question-2:Define the Law of Supply? Keeping in view the Law of Supply, how the following factors will shift the supply curve? (Each answer must be supported by a neat diagram): (2 + 8 = 10 marks)

a. If costs of raw material increases in the plastics industry;

b. If new technology is introduced in the automobile manufacturing;

c. If OPEC decides to reduce oil prices in the Gulf Region;

d. If government introduces some new taxes in the construction sector.

Question-3:Define and explain ‘Law of Diminishing Returnswith the help of diagram. What are the different stages of production in the short run?

(5+5 =10 marks)

Question-4:Define and explain ‘Price Discrimination (PD)’with the help of diagram. Also give examples of Price Discrimination from the real world?

(5+5 = 10 marks)

Question-5: (2+2+2+2+2+2+3 = 15 marks)

Suppose the quantity demanded of good (Qd) depends only on the price of the good (P), monthly income (M), and the price of a related good R (PR):

a. Construct the demand curve for the good when M = $1,000 and PR = $5. The equation for demand is

Qd = ________________________

b. Interpret the intercept and slope parameters for the demand equation in part a.

c. Let income decrease to $950. Construct the new demand curve. This good is _____________________ (normal, inferior). Explain using your graph.

d. For the demand curve in part c, find the inverse demand function:

P = _____________________.

e. Let the price of good R increase to $6 (income remaining at $950). Construct the new demand curve. Good R is a _______________________ (substitute, complement) good. Explain using your graph.

f. For the demand curve in part e, find the equilibrium price and quantity when supply function is as under;

PE = ____________ and QE = ____________

g. Construct the supply curve and verify your answer by showing equilibrium price and equilibrium quantity graphically.