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B28 ABDUL RASOOL KHAN, SECTION 1002B DATE:30:08:2010 (ASSIGNMENT OF MANAGRIAL ECOMONICS)

Q1:Rohan consumes two commodities, wheat and rice. The marginal utility derived by him from rice is two and half time the utility derived from the marginal utility of wheat. If wheat is available for Rs.12 /kg, what price will he be willing to pay for rice in order to maximize his utility? ANSWER:Let MU of wheat=x Price of wheat(p1)=12 Then MU of rice =5/2(given) Price of rice (p2)=? We know MUx/p=MUx/py x/12=5/2*x/p2 p2x=5/2x*12 p2x=60/2x there for p2=30 hense the price of rice is 30

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2 .Government acts as a police stat f.Ques. individuals decide how. i.2 The fundamental economic problems of what to produce. b. d. g. c. while market forces of supply and demand are relied upon to coordinate those individual pursuits. h. Fluctuations in prices coordinate individuals' wants. what. Discuss how a capitalist Economy solves • ANSWER:A: Capitalism economy otherwise called free market economy is an economic system based upon private property and the market in which. Under capitalism: a. e.High freedom for choice to the consumers. in principle. Individuals are free to do whatever they want as long as it is legal. Markets work through a system of rewards and payments. Individuals are encouraged to follow their own self-interest.Free environment to compete in the economy.More private participation in the field of economic activities. how to produce and for whom to produce are solved differently by different economic systems. and for whom to produce.Individuals and firms act for profit motive.

The primary debate among economists is not about using markets. 3500 4000 3000 2000 (Budget line) 1000 0 1000 2000 3000 3500 4000 5000 x 3 . 10 /kg respectively. 35000. If you have an income of Rs. ANSWER:INCOME=35000 TOMATOES=rs7 POTATOES=rs10 TOMATOES=35000/7=3500 POTATOES=35000/10=3500 THAT IS BUDGET LINE HERE: And income spend on potatoes = PP/ I =35000/10 y 5000 =Rs.Tomatoes and potatoes are available for Rs.j. it is about how markets Q3. 7/kg and Rs. draw the budget line as graph.

D:If cheese price is increase no effect on price. a technological breakthrough enables the good to be produced at a significantly lower cost 4 . How would you expect the following events to affect the price you receive for a bottle of wine? a. C:if unemployment rate is decrease then no effect on my price if I want I will increase the price. price of the product decreases b. The price of French wines decreases b. One hundred new wineries open in California c.Q4:Suppose you are the manager of California winey. E:yes if the bottle price is increase I will increase wine price because I don’t take lose I want cost analyse and take action Q5):-Other things being the same what would happen to the supply of a particular product if a.I woluld like to decrese the price of my wine per bottle because customers want also low price rather then me. B:if one hundred wineries open in California mywine per bottle price also decrese because there were so compitater if I want to stable in market I would like to decrese price. The price of cheese increases e. The price of a glass bottle increases significantly due to government anti-shatter regulations Answer:when I am manager of the California winey it may be I will right or not if A:the price of French wines decrease. The unemployment rate in USA decreases d.

Q6):-A) What is income consumption curve? Draw income consumption curve for a normal and inferior goods. With a higher income. unlike normal goods. is an observable fact relating to affordability rather than a statement about the quality of the good. there will be a new budget constraint line that intersects a higher indifference curve. c) The supply will also increase.[1] Normal goods are those for which consumers' demand increases when their income increases. 5 . the managers of the firms that produce that good expect the rise in price of that product in near future. the price of inputs used to produce the product increases d. the price of substitute commodity decreases e. and as more costly substitutes that offer more pleasure or at least variety become available. [2] Inferiority.the supply of the product should also decrease(contract). too much of a good thing is easily achieved with such goods. the income effect is the change in consumption resulting from a change in real income.a) If Price of a product decreases. Ans:. an inferior good is a good that decreases in demand when consumer income rises. d) The supply will also decrease. As a rule. Ans:-A)In economics. In consumer theory.c. in this sense. for which the opposite is observed. Give two interpretations of this point on the supply curve.25 and Qs=500. e) The supply will increase. B) Suppose the supply curve for allu tikki passes through the point P= Rs. the use of the inferior goods diminishes. b) The supply should also decrease. The incomeconsumption curve is the intersection of the points of tangency of the sets of budget constraint lines and indifference curves.

the Men`s Hair company increased the price of its shampoo and subsequently sold more shampoo than 2002.slope due to increase in price. or stay the same when income increases. Exceptions to the law of demand:Giffen Goods:-The case of Giffen goods needs a little of story telling!In early Ireland. . Ans. When the demand curve is positive.price is also increase.Depending on consumer or market indifference curves. decrease. the amount of a good bought can either increase.Yes. Good Y is a normal good since the amount purchased increases from Y1 to Y2 as the budget constraint shifts from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases Q7:-In 2003.the demand curve for this company is positively sloped because there is positive relationship between demand and supply.it was observedthat the poor population consumed two goods:meat(which was costly)and bread (which 6 . Is the demand curve for this company positively sloped? When the demand curve slopes positively? Give an example of a product in whose case demand curve slopes positively and also explain the exceptions of law of demand.

was cheap).This impilied that quantity demanded of bread(an inferior good)increased with increase in its price. ANSWER: $42=SOFT DRINKS.and as a result they buy less of it at lower prices and at higher prices.for which the consumer measures the satisfaction derived from these commondities not by their utility value. and the mayor wants to cut the operating subway system.Suppose that a study has found that the price elasticity of demand for subway rides is 0.price and quantity move in same direction.which was still the cheapest food.Thus in case. Hence contemplate of increase in price will leads to increase revenue. Is Shweta in equilibrium? Explain.the mayor should contemplate to increase the price of subway because increase in price is more necessary to decrease the demand.it made a large drain on the resourses of the poor people and raised their marginal utility of money to such an extent that they were forced to curtail their consumption of meat and buy more of bread.a very strange phenomenon was observed when the price of bread was increased. Q:8 Shweta spends her whole weekly food allowance of $42 on Pizza and soft drinks. Snob Appeal :-Opposite to Giffen goods.but by social status.7 in Washington D. Why? Ans:-Yes .there are certain goods which have snob value.PIZZA PIZZA=$2PER SOFT DRINK=$1PER 12*2=24 18*1=18 TOAT=$42 AND OTHER SIDE 14*2=28 14*1=14 TOTAL=$42 Q9:.the consumers of this particular commmondity want to show it off to others.. The price of single pizza is $2 and of soft drinks is $1.Shweta buys 12 pizzas and 18 soft drinks and her marginal rate of substitution between pizza and soft drinks is 1. 7 . Should the mayor contemplate increasing or decreasing the price of subway ride.C.

By the assumption of constant marginal utility of money show the consumer equilibrium with the help of table and diagram.px=price of x and MUm=marginal utility of money.such that a proportionate change in quantity demanded is more than a proportionate change in price.ep > 1(in absolute terms).In this case. Y Price 10 E=equilibrium Px X Q Q11. You are working for coca-cola as the market head.When proportionate change in quantity demanded is more than a change in price.=1 Substituting there values=MUx/10=1.Perfectely Elastic Demand :-This is one extreame of the elasticity range. MUx=10.Q10:-The price of chocolate is Rs. Where MUx=mariginal utility of x . Ans:-Consumer equilibrium=MUx/Px=MUm.In otherwords..when elasticity is equal to infinity. The company is planning to float a new drink which is white in colour.unlimited quantities of the commodity can be sold at the prevailing price and even a negligible increase in price would result in zero quantity demanded. Given:-price of chocolate=Rs 10 MUm=constant I.the commondity is regarded to have a highly elastic demand. What lessons from the concept of elasticity can you draw while fixing the price for this new drink? Ans:-There are various methods while fixing the price for this new drink:1.10 and you have to analyze the consumer behavior under cardinal utility analysis.Higly Elastic Demand:. 2. 8 .e.

No. If we do not had scare resources the law of demand will not be applied. b. A package of frozen vegetables 9 .ep<1. will we have a law of demand? Will we observe price rationing for goods? Give your arguments. 5.i. Crude oil f. Q13:-For each of the following .Example of scare resources is petrol.If we do not have scarce resources.As we know the law of demand is applied when we have scare resources. A farmer’s tractor e.then the commondity has a relatively inelastic demand.Perfectly Inelastic Demand :-In this case the quantity demanded of a commondityremains the same. The office building in which CBI agent works c.In otherwords.3.In otherwords.there will be no price rationing of goods because scare resources are not scare.then demand for that commondity is regarded as unitary elastic. Ans:-Scare Resourses:-These are those resources which have more demand than there supply.quantity demanded is totally unresponsive to change in price.state whether economists would consider it as a resource and if they would identify which of the four types of resources the item is a. The time that a CBI agent spends on a case d.irrespective of any change in the price.Unitary Elastic Demand:-When a given proportionatechange in price brings about an equal proportionate change in quantity demanded.supply or according to government rules as the resources are not scare from both the things are not apply. A computer used by CBI agent to track the whereabouts of suspected criminals. 4.Relatively inelastic demand :-when change in quantity demanded is found to be offset by change in its price.ep=1.Fixing of price is due to force of demand. Q12.e.

g. it works out the demand function for the book as Q=5000-5p.From the sales of data of other publishers of similar books. e)Natural resourse. f)man-made g)man made. plastic bags used by a company for holding its products Ans:-a) man-made resource as computer is made by man.20 ANSWER: A) Demand schedule:Price 100 200 300 400 500 QuantityDemand 4500 4000 3500 3000 2500 Demand curve:y 500 400 300 200 100 10 . 25 c)price for selling 2500 copies d)price for zero sales e)point elasticity of demand at price Rs. c)time is not the resourse. d)man made resource. Q. b)man-made resourse as office building is made by man. of books sold at price Rs. Find outa)Demand schedule and demand curve b)no.14 A publishing company plans to publish a book .

Q = 5000 – 5 (500) Q= 5000 – 2500.Q = 5000 – 5 (P). Illustrate the derivation of his Income Consumption Curve. Q15:A domestic servant spends his total income only on two goods.Q=5000 – 5 (20) Q= 5000 – 100. x C:- D:. 11 . food and clothing.he can purchase a bike and where he have take light food after salary increment he use to take the junk food and use restaurant rather then home.0 1000 2000 3000 4000 5000 B:Q = 5000 .if his salary is increase he will more purchase cloth more goods and take healthy food may be he can use his money to other work and uses like.5p Q = 5000 – 5(25) Q= 5000 – 175 Q= 4825 Q = 5000 – 5 (p) 2500=5000 – 5(p) -2500 = .so salary or income increment increase the living standred and other thing.5(p) 2500/5 = p 500 = p Hence price = 500. Q = 4900. ANSWER:If a domestic servent spends his total income on goods. Q= 2500. E:.food and clothing. Analyze the effect of increase in his income on consumption of food and clothing.

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