Due Date: 10-05-2016

ASSIGNMENT NO:2

ENGINEERING MANAGEMENT ECONOMIC S

Part (1) :
(i)

Define the following terms:

Demand
Supply
Price Elasticity of demand
Income Elasticity of demand

(ii)

How would you differentiate on the basis of elasticity between:

Substitute good and Complements
Normal goods, luxury goods and Inferior goods
Define law of demand and law of supply
Explain the difference between movement along the demand curve and shift in the
demand curve. Also list down the factor shifting demand curve.
Evaluate the effects of taxes:
How taxes on sellers affect market outcome
How taxes on buyers affect market outcome

(iii)
(iv)
(v)

Part (2) :
Question No.1:
Suppose that the good X has following demand and supply changes along with the change in
price level.
Price
7
8
9
10
11
12

Quantity Demanded
100
80
60
45
20
10

Quantity Supplied
50
65
80
100
120
145

a) Make a graphical demonstration:

Find out the equilibrium price and quantity of good X.
How an increase in the Demand will shift the equilibrium, keeping the supply
unchanged.
b) Find out the price elasticity of demand.

Question No.2:
The demand and supply functions are given below. Find the elasticity of demand and supply at
equilibrium price and quantity.

Question No.3:
Given the demand function Q= 50-4P+0.01Y, find income and price elasticity when:
P=5 and Y=10000.
Question No:4
Suppose that your demand schedule for compact discs is as follows:
Price
8
10
12
14
16
a)

b)

Quantity Demanded
(Income =10000)
40
32
24
16
8

Quantity Supplied
(Income =12000)
50
45
30
20
12

Use the midpoint method to calculate your price elasticity of demand as the price of
compact discs increases from $8 to $10 if
(i) your income is $10,000
(ii) your income is $12,000.
Calculate your income elasticity of demand as your income increases from $10,000 to
$12,000 if
(i) the price is $12
(ii) the price is $16.

Question No.5:
a) Define the cross price elasticity of demand. Also explain with reference to substitutes and
complementary goods.
b) For the following schedule calculate the cross price elasticity of Tea(X) and Coffee(Y) and
also determine the relationship between two goods(Tea and Coffee)

Tea(X)
Coffee(Y)

Price
40
20

Before
Quantity
50
40

Price
60
20

`After
Quantity
30
50