CECOS University of IT and Emerging Sciences

Department of Management Science

SUBMITTED BY GULRUKH
SUBMITTED TO MR. ABDUL MAJID
CU ID 3083-2022
ASSIGNMENT NO 3
SUBJECT MICROECONOMICS

QUESTION NO:1

How would each of the following affect the Pakistan market supply curve for corn?
 A new and improved crop rotation technique is discovered.
 The price of fertilizer falls.
 The government offers new tax breaks to farmers.

Answer:
a. A new and improved crop rotation technique is discovered:
A more effective method of crop rotation may enhance the amount of maize available on the
Pakistani market. Crop rotation includes changing the crops that are cultivated on a specific plot
of land over time. This helps to boost production, control pests and diseases, and improve soil
fertility. Farmers can boost their maize production, which will increase the supply of maize, by
using a more effective crop rotation approach. As a result, there would be more maize provided
at each price level, as indicated by a shift to the right in the supply curve for maize on the
Pakistani market.

b. The price of fertilizer falls:

The Pakistani supply curve for maize may change if fertilizer prices drop. Fertilizer is a crucial
component of maize cultivation because it offers nutrients that encourage plant growth and boost
output. Farmers' production expenses decrease when fertilizer prices decline. As a result, maize
crops will produce more since farmers are more likely to fertilize them. The supply curve for
maize would thereafter move to the right, showing a higher supply at each price level.

c. The government offers new tax breaks to farmers:

The market supply curve for maize can be positively impacted if the government grants new tax
benefits to Pakistani farmers. Tax benefits ease the financial load on farmers and minimize their
production expenses. Farmers may be encouraged to boost maize production and supply the
market if costs are decreased. As a result, the supply curve for maize would move to the right,
showing an increase in the amount supplied at each price level.

Conclusion:
It's vital to remember that while each of these influences the supply curve independently, there
are actually many different factors that affect market supply. To properly comprehend the market
dynamics, it is essential to take into account the combined effects of many elements.

Graph:
QUESTION NO:2
Indicate how you think each of the following would affect demand in the indicated
market:
 Buyers in the market for pizza read a study linking hamburger consumption
to heart disease.
 Buyers in the market for CDs learn of an increase in the price of audio
cassettes (a substitute for CDs).
 Buyers in the market for CDs learn of an increase in the price of CDs.

a. Buyers in the market for pizza read a study linking hamburger

consumption to heart disease:
The demand for pizza may change if consumers who are considering ordering pizza read a study
that links eating hamburgers to heart disease. The study suggests that eating hamburgers in place
of or in addition to pizza may have harmful effects on one's health. As a result, some consumers
may choose to consume fewer hamburgers and instead choose healthier options like pizza. Given
that consumers now view pizza as a relatively healthy alternative, there may be a rise in demand
for the food. As a result, there would probably be a rise in the market's demand for pizza.

b. Buyers in the market for CDs learn of an increase in the price of audio
cassettes (a substitute for CDs):
The demand for CDs is likely to increase if consumers who are in the market for CDs realize that
audio cassettes, a CD alternative, are becoming more expensive. When the cost of audio
cassettes increases, buyers can discover CDs to be a more cost-effective and appealing substitute.
As a result, some customers who were thinking about buying audio cassettes would change their
minds and choose CDs instead, increasing the demand for CDs. As a result, the market's demand
for CDs would probably rise.

c. Buyers in the market for CDs learn of an increase in the price of CDs:
The demand for CDs will normally decline if consumers realize that prices are going up for CDs.
When compared to other options like digital downloads or streaming services, CDs are now
comparatively more expensive due to price increases. As a result, customers can decide to buy
fewer CDs or switch to alternative ways of consuming music. The market's demand for CDs
would decline as a result of this change in consumer behavior. Consequently, there would
probably be less of a demand for CDs.

QUESTION NO:3
What will happen to the equilibrium price and quantity of oranges if the wage paid
to orange
pickers rise?
ANSWER:
The cost of production for orange producers would rise if the wage provided to pickers
increased. The following effects on the equilibrium price and supply of oranges can result from
this increase in production costs:

Equilibrium Price: Farmers would incur greater production expenses as a result of the rise in
the wage paid to orange pickers. Farmers may raise the price of oranges to make up for the
greater labor costs in order to retain their profit margins. The equilibrium price of oranges would
most likely rise as a result.

Equilibrium Quantity: The higher pay given to orange pickers may encourage farmers to
cut back on orange production or look for other cost-cutting options. Farmers may decrease the
amount of oranges they supply to the market if they are unable to balance the higher labor costs
through higher productivity or efficiency gains. As a result, the amount of oranges in equilibrium
would probably drop.
The average increase in orange pickers' pay would probably result in a higher equilibrium price
for oranges and a lower equilibrium supply of oranges on the market. However, other elements
including the elasticity of supply and demand, as well as farmers' capacity to absorb or pass on
the increased costs, would also have an impact on how specifically price and quantity were
affected.

QUESTION NO:4
How will an increase in the birth rate affect the equilibrium price of land?

ANSWER:
Numerous indirect effects on the equilibrium price of land can result from an increase in the birth
rate. There are a few things to think about even though the connection between birth rates and
land prices is not clear-cut:

Increasing Population: Over time, population growth is typically caused by a rise in the
birth rate. Due to the need for more homes, infrastructure, and commercial developments as the
population grows, there may be a greater demand for land. A rise in the equilibrium price of land
may result from this increased demand, which could put upward pressure on land prices.

Urbanization and Development:

Increased urbanization and development are frequently correlated with higher birth rates. Cities
and towns grow as a result of the increased housing demand, while rural areas change. The
demand for land in desirable places may increase as a result of this urbanization, raising land
prices.

Land Supply: Due to the short-term scarcity of available land, the supply of land is essentially
fixed. Land can become scarce and more expensive if population growth outpaces supply due to
rising birth rates and population growth. Long-term, nevertheless, the effect on land prices might
be moderated if the birth rate keeps increasing and there is a sufficient supply of undeveloped
land.

Regional and Local Aspects: Depending on regional and local aspects, the effect of rising
birth rates on land values can vary. Independent of the birth rate, circumstances like
governmental policies, zoning laws, infrastructure accessibility, and economic situations can
affect the equilibrium price of land.
It's significant to note that the relationship between the birth rate and land prices is intricate and
subject to a variety of influences. The equilibrium price of land in a particular area or market can
be influenced by other economic, social, and environmental factors in addition to the birth rate.

QUESTION NO:5
What will happen to the equilibrium price and quantity of fish if fish oils are found to help
prevent heart disease?
ANSWER:
If it is discovered that fish oils can reduce the risk of heart disease, the following effects on fish
supply and price at equilibrium may result:
Equilibrium Price: Fish demand may rise as a result of the finding that fish oils can reduce
the risk of heart disease. The demand curve for fish would move to the right as people's
awareness of the health advantages of fish intake increased. The equilibrium price of fish would
most likely increase with an increase in demand because consumers would be prepared to pay
more to get the desired amount of fish.

Equilibrium Quantity: The increasing demand for fish resulting from the health advantages
of fish oils may cause the equilibrium quantity of fish to grow. Producers would have to boost
their output to keep up with the increased demand, which can entail growing their aquaculture or
fishing businesses. As a result, there would probably be more fish available on the market at
equilibrium.
Overall, the finding that fish oils can reduce the risk of heart disease will probably lead to a rise
in both the equilibrium price and availability of fish. Consumers would be prepared to pay more
for fish as a result of the supposed health benefits, which would increase demand and raise
prices. In response, producers would increase the amount of fish they supply the market with to
satisfy the increased demand.

QUESTION NO:6
What will happen to the equilibrium price and quantity of beef if the price of chickenfeed
increases?

ANSWER:
The following effects on the equilibrium price and supply of beef are possible if the price of
chicken feed rises:

Equilibrium Price: A rise in the cost of chicken feed may have a small but measurable effect
on the cost of beef. Grain ingredients like corn and soybeans, which are also used in cow feed,
make up the majority of chicken feed. The cost of production for chicken producers increases
when the price of chicken feed increases. The availability of chicken meat on the market may
decline if poultry farmers cut back on output to maintain their profit margins. The demand for
beef will therefore rise as consumers who would have bought chicken meat as a substitute for
beef may now choose beef. The equilibrium price of beef may rise as a result of the rising
demand for beef and the falling supply of chicken.

Equilibrium Quantity: It's unclear how the change will affect the equilibrium quantity of
beef. As previously noted, some poultry producers may decide to lower their flock size as a
result of the rising cost of chicken feed. Although people have various preferences, it's crucial to
keep in mind that chicken and beef are not exact alternatives. Because of the greater cost of
meat, some customers may decide to consume less chicken and beef entirely, while others may
decide to switch to beef. The proportional size of these changes in consumer behavior would
determine the overall impact on the amount of beef that is produced and demanded.
Overall, as consumers choose to swap chicken for beef, a rise in the price of chicken feed might
potentially result in an increase in the equilibrium price of beef. The effect on the equilibrium
quantity of beef, on the other hand, is less certain and would depend on a number of variables,
such as consumer preferences and general changes in meat consumption habits.

QUESTION NO:7
Because of health awareness many people reduce their consumption of animal oil and increase
their consumption of vegetable oil to reduce cholesterol problems. What will happen to demand
curve of both products?

ANSWER:
Due to increased health consciousness and worries about cholesterol, it is anticipated that
consumers would consume more vegetable oil than animal oil, which will have the following
effects on both products' demand curves:

Animal Oil (such as butter and other animal fats):

If demand for animal oil decreased, the demand curve would move to the left. The change is
being brought about by consumers who are using less animal oil because of health concerns.
People are likely to look for alternatives to animal oil, which is known to contain saturated fats
and cholesterol, as they become more aware of the detrimental health impacts linked with high
cholesterol levels. As a result, the demand for animal oil would decline, shifting the demand
curve to the left.

Vegetable Oil (such as olive oil or canola oil):

As demand for vegetable oil rises, the demand curve will shift to the right. Customers are likely
to choose healthier substitutes like vegetable oil as they actively try to lower their cholesterol
issues. Vegetable oils are viewed as healthier options with reduced cholesterol content,
especially those high in unsaturated fats like canola oil and olive oil. The demand for vegetable
oil would rise as a result of this change in consumer attitudes towards health, shifting the demand
curve to the right.
Overall, the demand curve for vegetable oil would shift to the right, indicating increased
demand, while the demand curve for animal oil would shift to the left, showing a decline in
demand. This change reflects the shifting consumer tastes brought on by increased health
consciousness and the desire to lower cholesterol issues.

QUESTION NO:8
A survey indicated that chocolate is Pakistanis favorite ice cream flavor. For each of the
following, indicate the possible effects on demand, supply, or both as well as equilibrium
price and quantity of chocolate ice cream.
 A severe drought in the Central Punjab causes dairy farmers to reduce the number of milk-
 producing cattle in their herds by a third. These dairy farmers supply cream that is used to
manufacture chocolate ice cream.
  A new report by the Medical Association reveals that chocolate does, in fact, have significant
health benefits.
 The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.
 New technology for mixing and freezing ice cream lowers manufacturers’ costs of producing
chocolate ice cream.
Answer:

 The supply of cream required to make chocolate ice cream would be affected by this
scenario. Dairy farmers would have fewer milk-producing cattle, which would result in a
decline in the supply of cream, a crucial component in the creation of chocolate ice
cream. The supply curve for chocolate ice cream would subsequently move to the left as
a result. A lower equilibrium amount of chocolate ice cream and a higher equilibrium
price are both possible outcomes of the supply decline.
 The publishing of a study outlining the health advantages of eating chocolate would
probably affect the market for chocolate ice cream. Consumer interest in chocolate
products, particularly chocolate ice cream, may rise as a result of the favorable health
associations. The demand curve would move to the right as a result of rising demand for
chocolate ice cream. Due to the rise in demand, chocolate ice cream's equilibrium price
and supply may rise.
 The market for vanilla ice cream would be the most affected by the discovery of less
expensive synthetic vanilla flavoring. However, it can also have an indirect impact on the
demand for chocolate ice cream. Some customers who previously preferred chocolate ice
cream may switch to vanilla ice cream if the price of vanilla ice cream lowers as a result
of the availability of less expensive synthetic vanilla flavoring. The demand for chocolate
ice cream may decline as a result of this shift in customer preferences, moving the
demand curve to the left. As a result, chocolate ice cream's equilibrium price and
production may fall.
 The availability of chocolate ice cream would be impacted by the advent of new
technology that lowers the cost of production. Ice cream producers would be encouraged
to boost their supply of chocolate ice cream if production costs were to decline. The
supply curve for chocolate ice cream would then move to the right as a result. A lower
equilibrium price and a higher equilibrium amount of chocolate ice cream may result
from this increase in supply.
 The precise effect on equilibrium price and quantity would depend on the strength and
relative importance of each element, as well as other market dynamics like the elasticity
of demand and supply. This is vital to keep in mind.

QUESTION NO:9
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium
price, and the equilibrium quantity of each of the following events.
a. The market for newspapers in your town
Case 1: The salaries of journalists go up.
Case 2: There is a big news event in your town, which is reported in the newspaper
b. The market for the Krugman and Wells economics textbook
Case 1: Your professor makes it required reading for all of his or her students.
Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

a. The market for newspapers in your town:

Case 1: Journalists now earn more money. The supply side of the market for newspapers would
be most impacted by this event. Increased pay for journalists can entice more skilled people to
the profession and encourage those who are already working there to continue. As a result, news
stories' quantity and quality can rise, increasing the supply of newspapers. A diagram of it is
shown below.

The starting supply curve for newspapers is shown by S1 in the diagram, and the increasing
supply of newspapers as a result of greater journalist wages is represented by S2. A drop in
equilibrium price (P1) and an increase in equilibrium quantity (Q1) can be seen.

Case 2: A significant news event occurs in your town and is covered by the
media.

The market for newspapers would be predominantly impacted on the demand side by this event.
A major news incident can significantly enhance public attention and boost newspaper sales as
people look for updates and information. In a diagram, it would seem as follows:
The initial demand curve for newspapers is shown in the diagram as D1, and the spike in demand
brought on by the major news event is shown as D2. Both the equilibrium quantity (Q1) and the
equilibrium price (P1) rise.

b. The market for the Krugman and Wells economics textbook:

Case 1: The demand for the economics textbook by Krugman and Wells would be most affected
by this circumstance. The demand for the textbook would increase if the professor made the
textbook obligatory reading for all students since they would be forced to buy it. In a diagram, it
would seem as follows:

The initial demand curve for the textbook is shown in the diagram as D1, and the increased
demand as a result of its inclusion as required reading is shown as D2. Both the equilibrium
quantity (Q1) and the equilibrium price (P1) rise.

Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.
The supply side of the market for the economics textbook by Krugman and Wells would be most
impacted by this event. Because of decreasing printing costs brought on by the usage of synthetic
paper, publishers may be able to produce more textbooks for less money. In a diagram, it would
seem as follows:

S1 in the diagram illustrates the textbook's original supply curve, and S2 the higher supply
brought on by lower printing costs. As the equilibrium quantity (Q1) rises, the equilibrium price
(P1) declines.

It's vital to keep in mind that the diagrams are simplified representations of the actual effects,
which would depend on a number of other variables and market dynamics.

QUESTION NO:10

Good A and good B are related to each other, either being substitutes or complements.
Now the price of good B rises. Illustrate the impact on the market for good A (with graphs) if
 A and B are substitutes
 A and B are complements

Answer:

A and B are substitutes:

In the event when goods A and B are interchangeable, a rise in the cost of product B will result
in a rise in the demand for good A. Customers will switch from the relatively more costly good B
to the relatively less expensive good A, explaining why. Let's use a graph of supply and demand
to demonstrate this effect on the market for good A:

Graph for Subtitutes goods:

D1, which represents the initial demand for good A, is used to depict the demand curve initially.
The demand for good A will shift to the right, represented by D2, as the price of item B rises.
This change indicates the rise in demand for good A as consumers choose it over good B, which
is now comparatively more expensive.

A and B are Compliments:

If goods A and B are complementary, the demand for good A will decline as the price of product
B rises. This is due to the fact that the increased cost of B makes it proportionally more
expensive to consume along with A, decreasing the demand for A as a whole. Let's use a graph
of supply and demand to demonstrate this effect on the market for good A:

Graph for Complementary goods:

D1, which represents the initial demand for good A, is used to depict the demand curve initially.
The demand for good A will shift to the left, represented by D2, as the price of good B rises.
This change represents the decline in demand for good A as customers eat less of A as a result of
the more expensive complement good B.

Note:
Several variables, including the nature of the items, consumer preferences, and the elasticity of
demand, will affect the precise form and size of the shifts in the demand curve. Simple
illustrations of the overall impact on the market for good A are shown in the graphs above.