Pakistan Institute of Fashion and Design

Department of Fashion Marketing and Merchandising

Mid Term Exam Course Title: Introduction to Economics I
Maximum Marks: 20 Semester: III (FALL)
Faculty: Khadija Hassan Time Allowed: 1 Hr

INSTRUCTIONS:
There are six questions. Attempt all questions.
Make sure you upload the correct file/document on MSTEAMS while uploading
the solved exam paper.
Manage your time properly.
Use of mobile phone is not allowed.
Plagiarism or cheating is strictly not allowed.
DONOT copy paste answers from the internet.
Keep your cameras ON throughout the exam paper.

a. If an economy is operating inside the production possibility

curve, can we assume that it must be experiencing
unemployment? YES/No. Support your answer with an
explanation for your choice.2 marks
When an economy is operating on its production possibilities curve, we say that it is
engaging in efficient production. If it is using the same quantities of factors of production but
is operating inside its production possibilities curve, it is engaging in inefficient production.

b. Based on the figure below, explain the concept of production

possibility curve in detail. Hint: Make sure you discuss all points
A, B, D and E. 6 marks
In this curve, point A to B shows the production possibility graph of two
goods, where in point A and B all the resources are being utilize
efficiently. In point D there are the resources that are under utilized and
on the point E the resources are unattainable.

c. How can the concept of Opportunity cost be explained using

points A, B and C?2 marks

Figure 1
When the opportunity cost of a good increases as output of the good increases, which is represented in
a graph as a PPC that is bowed out from the origin; for example hira gives up 2000fidget spinners when
she produces the first Pokemon card, and 3000fidget spinners for the second Pokemon card, so she has
increasing opportunity costs.

d. Compare the two economic systemsFree Market Economy and

Planned Economy based on “variety of good available to
consumers” and “level of innovation”. 4 marks
 In a theoretical market economy, variety of goods available to the customers would be more as
compare to planned economy because government only focuses on the needs of the customers.
 Supply and demand also decide investment decisions, production, and distribution. In
a centrally planned economy, the government makes decisions, instead of consumers and
businesses.

e. Cheap groceries (frozen food, canned food, instant noodles, etc.)

can be categorized as normal or inferior goods. Explain your
choice. 2 mark
In my perspective, these are categorized as inferior goods because when its consumer income would
increase its demand and the demand of goods would increase.

f. What are the main underlying determinants of demand for:

i) Holidays in London2 marks

The determinant of demand of London holidays is the consumer wants to spend their holidays in London
but the tourism of London is very expensive and their hotels are also very expensive. So, a key
determinant of demand is the level of income evident in the appropriate country or region under
analysis. 

ii) COVID 19 vaccine 2 marks

The determinants’ of demand of covid-19 vaccine are accepted in few countries demands are complex in
nature and context specific varying across time, place and perceived behavioral nature.