## (solution) Question-1 : Suppose that you have been hired as an Economic

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:

 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

1. At what price, the oil market will be in equilibrium situation?
2. If OPEC produces 50 million of barrels/day, calculate its Total Revenue (TR)?
3. 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?
4. When the price changes from \$30/barrel to \$40/barrel, calculate Price Elasticity of Demand (Ed)?
5. 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):

1. If costs of raw material increases in the plastics industry;
2. If new technology is introduced in the automobile manufacturing;
3. If OPEC decides to reduce oil prices in the Gulf Region;
4. Ifgovernmentintroducessomenewtaxesintheconstructionsector.
5. Question-3:Defineandexplain'LawofDiminishingReturnswiththehelpofdiagram.Whatarethedifferentstagesofproductionintheshortrun?
6. Question-4:Defineandexplain'PriceDiscrimination(PD)'withthehelpofdiagram.AlsogiveexamplesofPriceDiscriminationfromtherealworld?
7. Question-5:

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):

1. Construct the demand curve for the good when M = \$1,000 and PR = \$5. The equation for demand isQd = ________________________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 = ____________

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

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Sep 13, 2020

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