Question Sheet

Economic Microeconomics Exam Deadline: 01/06/2021 to 02/06/2021

Instructor: Wajid Kabir Program: BBA/BSc. Economics
Session: Morning, Evening Semester: Spring 2021
Assessment: Open Book Questions Marks: 25

Attention:
Attempt all of the following questions.
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other sources.
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After completing the Exam in MS Word format, upload it to the portal.

Question 1. Economics is the science of choice and scarcity as a modern definition of economics
by Prof. Lionel Robbins. Adam Smith defines it as science of Wealth and Science of social
welfare by Alfred Marshal. Write your consensus on each of these definitions and interpret your
findings as which one you think as the most accepted and applicable definition of economic
sciences in current era of emerging economies. (Answer in 200 words you will get 5 marks)
Question 2: Economic is a social science concerned with the production, distribution, and consumption of
goods and services. It studies how individuals, businesses, governments, and nations make choice about
how to allocate resources.
In this way the study of economics is based on ten principles that best defines the core and subject area of
economic sciences.
Following are various statements which describe some principles of economics. You need to identify each
statement with suitable principle (name) and interpret as why the given statement best presents that
specific principle.

2.1. A student who is enrolled for 1 year of education, if he/she add one more year to its study, they will be
able to apply for permanent residency which incur as additional benefits but with this come the
additional costs of college fees, time etc. (name principle and interpret).
2.2. Living standard of a U.S. citizen is better than living standard of Mexican and Nigerian citizen as a
U.S. citizen earn more than those two citizens. (name principle and interpret).
2.3. When in Germany the average price of the commodity is tripling every month so the production of
money is also tripling every month. (name principle and interpret).
2.4. Trade between country A and country B will help both the countries to get goods of one another and
help them to expertise in what they are good at producing. (name principle and interpret).
2.5. If the cost of the orange increases then the consumer will shift towards apples, as cost of orange is
high. (name principle and interpret).
(interpret answers for all statements in your own words, you will get 5 marks)
Question 3 :
Case1. Assuming that the price of a car brand X has increased. Obviously, consumers will shift their
preferences to alternative brands. A similar brand Y is available in the market, and consumers will prefer
to buy it instead of brand X.

Case 2. Let’s assume that the price of the same car brand X has risen. The demand of that car brand will
obviously reduce. However, along with the decrease in demand for the car, there will be automatically
lesser demand for the Y (tire) used on the car.

3.1. In case1 and Case2, show the cross relation of the two goods X and Y respectively.
3.2. In Case1 what, really happens to the quantity demand of X and Y respectively also discuss
which one has a rightward shift in its demand.
3.3. Draw two separate graphs of demand curve of good Y in both of the cases.
3.4. In Case2, show whether the change in demand of Y is a movement or shift, interpret your
answer. (write your answers, you will get 5 marks)

Question 4: You run a small business and would like to predict what will happen to the quantity
demanded for your product if you raise your price. While you do not know the exact demand curve for
your product. You do know that in the first year you charged rupees 45 and sold 200 units. And that in the
second year, you charged rupees 30 and sold 1800 units.

4.1). Calculate price elasticity of demand for your product by using point method between two years and
interpret as what demand degree it could be?

4.2). If you plan to raise the price by 10% what would be a reasonable estimate of what will happen to
quantity demanded in percentage term if the product has many substitutes? Interpret your findings.

4.3). If you raise your price by 10%, and the demand for your product is relatively inelastic will revenue
increase or decrease? Explain whether or not you should increase price by 10%.

4.5). To increase the demand of your product, should you decrease the price? Explain

(write your answers, you will get 5 marks)

Question 5: Solve the given elasticity problem questions.

5.1. If the price falls from 20 to 18 Afs, the quantity demanded rises from 18000 to 19000 units.

a). Calculate the price elasticity of demand by using Arc or midpoints method and interpret your answer.

b). Using outlay method what happens to turnover (Price * Quantity) due to the price change. Is it a good
decision by seller to decrease the price? If your answer is in yes or no, interpret.

5.2. If the price rises by 3 %, the quantity demanded falls by 1.5 %. Calculate the price elasticity of
demand. Interpret your result.

5.3 If the price remains unchanged and demand for a good decrease by 10%, using a ratio method calculate
price elasticity of demand also interpret as what degree of demand elasticity it could be

(write your answers, you will get 5 marks)