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

(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

Answer the following questions:

  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