College of Administrative and Financial Sciences

Assignment 1
Microeconomics (ECON101)
Deadline for students: (3/10/2022@ 23:59)

Student’s Name: Ahmed Ali Mohamed

Course Name: Microeconomics
Harthy
Course Code: ECON101 Student’s ID Number: S210043239
Semester: 1 CRN: 12916
Academic Year: 2022-23 SEM-1

For Instructor’s Use only

Instructor’s Name: BANDAR ALMUTAIRI
Students’ Grade: /10 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 This assignment is an individual assignment.
 The Assignment must be submitted only in WORD format via the allocated
folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented. This also
includes filling in your information on the cover page.
 Students must mention question numbers clearly in their answers.
 Late submitted assignments will NOT be entertained.
  Avoid plagiarism; the work should be in your own words; copying from
students or other resources without proper referencing will result in ZERO
marks. No exceptions.
 All answered must be typed using Times New Roman (size 12, double-
spaced) font. No pictures containing text will be accepted and will be
considered plagiarism).

Submissions without this cover page will NOT be accepted. (Don’t change the
cover page format.)

Assignment Questions: (Total Marks: 10)

Q1. In Riyadh City Road traffic congestion is increasing day by day. As an economist how
you see this problem? Suggest and explain an economist’s solution to this problem. (3 Marks)
Q2. What is opportunity cost? Draw a Production Possibility curve for a country producing
two goods and show with help of an example, how principle of opportunity is applied in
explaining the changes in production possibilities for the country. (3 marks)
Q3. What is market equilibrium? Take an example of pizza (assume its price and quantity
demanded) and analyse graphically, what happens to the equilibrium price and quantity
when, (a) there is increase in demand and (b) there is increase in supply. (4 Marks)

Assignment Answers :

Answer Q1 :
From the point of view of an economist, there are several angles from which one can
approach this topic. The potential cost of wasted time in traffic is the first thing to consider.
Traffic delays waste time that could be used for business, family, or other activities that
would be considered more beneficial. The second is to think about how traffic impacts
businesses. Traffic can affect a company's ability to deliver items to customers on time.
After all, since cars are polluting in traffic jams, traffic can also have an impact on the
environment. From an economic point of view, one answer to this problem could be the
levying of charges for the use of the motorway. Congestion pricing, where drivers are
charged for trips during peak hours, could be a solution. This would encourage motorists to
choose public transport or travel off-peak.

Answer Q2 :
Opportunity cost: An economic term used to express the process of choosing between
available alternatives when making a decision, and refers to the lost benefit that would have
been achieved by the alternative that was not chosen.
The following figure shows the production possibility curve for a country that produces
wheat and clothing. The production of wheat is represented on the x-axis and clothing
production is represented on the y-axis.

PPF
60

A
50 B
40 C
C
clothes (unit)

30

D
20

10
D E
0 0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Whott (Ton)

Series2

A country that produces two commodities of wheat and clothing according to the options
available to it, b, c, or d. With option b, one ton of wheat products and forty-five thousand
pieces of clothing can be produced, and at option C, two tons of wheat and thirty-five
thousand pieces of clothing can be produced. With option D, three tons of wheat and twenty
thousand pieces of clothing can be produced.
Looking at the above figure, we find that the state can transfer between the different options
available to it at points a, b, c, d, e. When moving from option a to option b, the state will
sacrifice five thousand pieces of clothing, the opportunity cost, for Obtaining one ton of
wheat, while when moving from option B to option C the country will sacrifice ten thousand
pieces of clothing, the opportunity cost, in order to obtain another additional ton of wheat.

The production of the first ton of wheat was the sacrifice of 15 thousand pieces of clothing,
and the fourth ton was the price of sacrificing 20 thousand pieces of clothing. This increase in
the rate of sacrificing the production of clothes in exchange for obtaining the same amount of
wheat is due to the fact that the specialized production elements that have high efficiency in
wheat production are the ones that are initially transferred from the production of clothes, and
therefore only a few of the elements that produce clothes are sacrificed. And with the
continuation of the increase in wheat production, the transformation of production elements
begins with a medium efficiency, and therefore a larger number must be sacrificed than the
previous one... And so we reach the production of the fourth ton of wheat, and here we must
transfer all production elements to wheat, so we must Sacrifice all garment production.

Answer Q3 :

Market equilibrium : It is the situation in which the supply of services and goods is
completely equal to the demand as a result of the absence of a shortage or surplus in the
market, the prices remain stable during this case, and market equilibrium is defined as the
state of the market in which it reaches the equilibrium price; It is the price of services or
goods when the supply of them is equal to the demand for them.
Example :

The following table shows the market equilibrium table for pizza
Price of demand Supply Market condition Oversupply (+) or
pizza quantity quantity short supply (-)
10 200 80 - 120
15 180 100 - 80
20 160 120 - 40
25 140 140 0 Equilibrium
30 120 160 40
35 100 180 80
40 80 200 120

From above the market equilibrium table the following observations can be made:
 When the market price was 15 riyals, the required quantity was 180 units of the
commodity, and the quantity supplied of it was 100 units. This means that there is a
shortage of supply (excess demand) of 80 units.
  When the market price was 25 riyals, the quantity demanded was 140 units of the
commodity, and the quantity supplied of it was 140 units. This means that there is an
equilibrium in the market as the quantity demanded = the quantity supplied (at a
certain price)
 When the market price was 35 riyals, the quantity demanded was 100 units of the
commodity, and the quantity supplied of it was 180 units. This means that there is an
excess of supply (demand shortage) of 80 units.

a. If the demand increases, the price increases and the quantity supplied increases

b. In the event of an increase in supply only, the price will decrease and the quantity supplied
will increase