ASSIGNEMENT

Subject: MICROECONOMICS

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Q1. Discuss three determinants for supply and demand, separately. Explain and draw the
diagrams, if required.

Ans. Definition of Supply: A curve describing all the possible quantities that sellers are
willing and able to produce, at all possible prices they might encounter in a particular period
of time.
P SUPPLY

Q
Determinants of supply (also known as factors affecting supply) are the factors which
influence the quantity of a product or service supplied. The price of a product is a major
factor affecting the willingness and ability to supply.

1. Number of Seller: Greater the number of sellers, greater will be the quantity of a
product or service supplied in a market and vice versa. Thus increase in number of
sellers will increase supply and shift the supply curve rightwards whereas decrease in
number of sellers will decrease the supply and shift the supply curve leftwards.
2. Price of Related Goods: Firms which are able to manufacture related products (such
as air conditioners and refrigerators) will the shift their production to a product the
price of which increases substantially related to other related product(s) thus causing a
reduction of supply of the products which were produced before.
3. Technology: Improvement in technology enables more efficient production of goods
and services. Thus reducing the production costs and increasing the profits. As a
result supply is increased and supply curve is shifted rightwards. Since technology in
general rarely deteriorates, therefore it is needless to say that deterioration of
technology reduces supply.

Q2. "Covid19 has huge opportunity cost for all decision makers" True or False. Justify your
stance with examples.

Ans. The economic impacts of the COVID-19 crisis are increasingly hitting low- and middle-
income countries and the poor. International travel restrictions and the full or partial closure
of businesses and industries in Asia, Europe, and North America have led to a collapse in
global travel and are expected to reduce the flows of remittances. Tourism and remittances
are important sources of employment and incomes for the poor, respectively. 
Q3. Covid19 caused serious disruptions for supply and demand, domestically and globally. Is
that true for Pakistan's economy? Explain.

Ans. The impact of COVID-19 on Pakistan’s economy can be severe and may lead to a
reduction in GDP growth, deterioration in current & fiscal balances, disruption in supply
chain and increased unemployment. According to the recent estimates by the Planning
Commission of Pakistan1, COVID-19 is expected to cause ~10% loss, estimated at PKR 1.1
Trillion, of total GDP during the last quarter (Apr-Jun 2020) of FY 2020. Additionally,
according to the Pakistan Institute of Development Economics (PIDE),2 due to trade
disruptions as a result of COVID-19.

The crisis has already transformed into an economic and labour market shock, impacting not
only supply (production of goods and services) but also demand (consumption and
investment). Disruptions to production, initially in Asia, have now spread to supply chains
across the world. All businesses, regardless of size, are facing serious challenges, especially
those in the aviation, tourism and hospitality industries, with a real threat of significant
declines in revenue, insolvencies and job losses in specific sectors. . Consumers in many
economies are unable or reluctant to purchase goods and services. Given the current
environment of uncertainty and fear, enterprises are likely to delay investments, purchases of
goods and the hiring of workers.

Beyond the urgent concerns about the health of workers and their families, the virus and the
subsequent economic shocks will impact the world of work across three key dimensions: 1)
The quantity of jobs (both unemployment and underemployment); 2) The quality of work
(e.g. wages and access to social protection); and 3) Effects on specific groups who are more
vulnerable to adverse labour market outcomes.