Assignment 3

SUBJECT: ECONOMIC

SUBMITTED TO:
MR. ABDUL MAJID KHAN

SUBMITTED BY:
 HINA KHAN

CLASS ID: CU-2938-2022

CLASS & SECTION: BSSE-2022(A)

Q1. How would each of the following affect the Pakistan market supply curve for
corn?

a. A new and improved crop rotation technique is discovered.

b. The price of fertilizer falls.

c. The government offers new tax breaks to farmers.

Answer:

a. A new and improved crop rotation technique is discovered - the supply of corn
will increase, and the market supply curve will shift rightwards.

b. The price of fertilizer falls - the supply of corn will increase, and the market
supply curve will shift rightwards.
 c. The government offers new tax breaks to farmers - the supply of corn will
increase, and the market supply curve will shift rightwards.

Q2: Indicate how you think each of the following would effect demand in the
indicated market:

a. Buyers in the market for pizza read a study linking hamburger consumption to
heart disease.

b. Buyers in the market for CDs learn of an increase in the price of audio
cassettes (a substitute for CDs).

c. Buyers in the market for CDs learn of an increase in the price of CDs.

Answer:

a: This information is likely to have a positive effect on the demand for pizza. Since the
study suggests that hamburger consumption may lead to heart disease, some buyers
may seek alternative food options. As a result, they might be more inclined to choose
pizza over hamburgers, leading to an increase in demand for pizza.
 Price
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Quantity

b: This situation could have a positive effect on the demand for CDs. If the price of
audio cassettes increases, buyers may perceive CDs as a relatively more attractive
and affordable option for enjoying music. As a result, they might switch their preference
from audio cassettes to CDs, leading to an increase in demand for CDs.

Price
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| D1
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Quantity

c: This information is likely to have a negative effect on the demand for CDs. When the
price of CDs increases, buyers may perceive them as less affordable or less valuable
compared to alternative options, such as digital downloads or streaming services.
Consequently, some buyers may choose to reduce their CD purchases or switch to
alternative formats, leading to a decrease in demand for CD’s.

Price
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Quantity

The magnitude of the shifts may vary depending on factors of the market conditions.
Q3. What will happen to the equilibrium price and quantity of oranges if the wage
paid to orange pickers rises?

If the wage paid to orange pickers rises, it will increase the cost of production for
orange farmers. This change in production costs will have an effect on the equilibrium
price and quantity of oranges in the market.

Equilibrium Price:

The increase in the wage paid to orange pickers will lead to an increase in production
costs. To maintain profitability, orange farmers will need to cover these higher costs.
As a result, they are likely to pass on a portion of these increased costs to consumers
in the form of higher prices for oranges. Therefore, the equilibrium price of oranges is
likely to rise.

When the wage paid to orange pickers rises, it increases the cost of production for
orange farmers, resulting in a leftward shift of the supply curve
Price
^
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Quantity

Equilibrium Quantity:

The rise in the wage paid to orange pickers may have an indirect impact on the
equilibrium quantity of oranges. Since the cost of production has increased, orange
farmers may reduce their production levels or cut back on their orange orchards to
mitigate the higher costs. This reduction in supply can lead to a decrease in the
quantity of oranges available in the market.

The decrease in supply also leads to a decrease in the equilibrium quantity of oranges

Price
^
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| S1
| (Shift to the lift)
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Quantity
The combined effect of the higher price and potentially reduced supply is likely to
result in a decrease in the equilibrium quantity of oranges. If the wage paid to orange
pickers rises, it is expected to lead to an increase in the equilibrium price of oranges
and a decrease in the equilibrium quantity of oranges.

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Q4: How will an increase in the birth rate affect the equilibrium price of land?

Answer:

Shift in Land Use:

On the other hand, an increase in the birth rate might also lead to a shift in land use
towards other purposes, such as schools, daycare centers, parks, or other facilities to
accommodate the growing population. This shift in demand for land can have varying
effects on the equilibrium price, depending on the relative supply and demand for these
different land uses. If the supply of land suitable for these alternative purposes is
limited, the increased demand could lead to higher prices for land in those specific
areas.

Q5: What will happen to the equilibrium price and quantity of fish if fish oils are
found to help prevent heart disease?

Answer:

If fish oils are found to help prevent heart disease, it can have an impact on the
equilibrium price and quantity of fish in the market

Equilibrium Price:

The discovery that fish oils help prevent heart disease can lead to an increase in the
demand for fish. As more consumers become aware of the health benefits, they may
be motivated to include fish in their diets or increase their consumption. This increased
demand can result in a shift of the demand curve for fish to the right. As a
consequence, the equilibrium price of fish is likely to rise as buyers are willing to pay
more to obtain the desired quantity of fish.

Equilibrium Quantity:

With the increased demand for fish due to the health benefits of fish oils, the
equilibrium quantity of fish is expected to increase. As more consumers seek fish as a
dietary option to prevent heart disease, fish producers may need to increase their
supply to meet the rising demand. This can result in a shift of the supply curve for fish
to the right, leading to a higher equilibrium quantity of fish in the market.

if fish oils are found to help prevent heart disease, the equilibrium price of fish is likely
to increase, and the equilibrium quantity of fish is likely to increase as well. This
change reflects the increased demand for fish due to the perceived health benefits
associated with fish oils

Q6: What will happen to the equilibrium price and quantity of beef if the price of
chickenfeed increases?

Answer:

If the price of chicken feed increases, it can have an impact on the equilibrium price
and quantity of beef in the market.

Equilibrium Price:
The increase in the price of chicken feed can affect the cost of production for chicken
farmers. Since chicken feed is a significant input in poultry production, higher feed
prices can lead to increased production costs for chicken farmers. As a result, chicken
farmers might pass on a portion of these increased costs to consumers in the form of
higher prices for chicken meat. This can lead to a decrease in the supply of chicken
and potentially increase the demand for alternative meat options, such as beef. The
increased demand for beef can result in a shift in the demand curve to the right,
leading to a higher equilibrium price of beef.

Equilibrium Quantity:
The increase in the price of chicken feed may cause some chicken farmers to reduce
their production or cut back on their chicken flocks to mitigate the higher costs. This
reduction in chicken production can lead to a decrease in the supply of chicken meat in
the market. As a result, some consumers might switch to purchasing beef as a
substitute for chicken meat. This increased demand for beef can result in a shift in the
demand curve to the right, leading to a higher equilibrium quantity of beef.

If the price of chicken feed increases, it is likely to result in a higher equilibrium price
and quantity of beef. The increase in beef demand, driven by the higher cost of chicken
meat, can lead to a shift in the demand curve for beef, resulting in an upward pressure
on both price and quantity.

Q7. 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:

If many people reduce their consumption of animal oil and increase their consumption
of vegetable oil due to health awareness and cholesterol concerns, it will have an
impact on the demand curve for both products.

Demand for Animal Oil:

The demand for animal oil is likely to decrease as consumers shift away from it due to
health concerns. This can result in a leftward shift of the demand curve for animal oil.
As consumers seek healthier alternatives and reduce their consumption of animal oil,
the demand curve for this product will shift downward, indicating a decrease in
demand.

Demand for Vegetable Oil:

The demand for vegetable oil is likely to increase as consumers switch to it as a
healthier alternative to animal oil. This can result in a rightward shift of the demand
curve for vegetable oil. As consumers increase their consumption of vegetable oil due
to health awareness and cholesterol concerns, the demand curve for this product will
shift upward, indicating an increase in demand.

Due to health awareness and cholesterol concerns, the demand curve for animal oil is
likely to shift to the left, indicating a decrease in demand. Simultaneously, the demand
curve for vegetable oil is likely to shift to the right, indicating an increase in demand.
This shift reflects the changing preferences of consumers and their increased
inclination towards healthier alternatives.
Q8: 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.

Answer:

a. 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.

Effect on Demand: There may not be a direct effect on demand for chocolate
ice cream due to the drought. However, if consumers become aware of the reduced
supply of cream and anticipate potential scarcity or higher prices of chocolate ice
cream, they might increase their demand for it.

Effect on Supply: The reduced number of milk-producing cattle and lower supply
of cream can lead to a decrease in the supply of chocolate ice cream. As a result, there
may be a decrease in the quantity of chocolate ice cream available in the market

Equilibrium Price and Quantity: The decrease in supply can potentially

lead to a higher equilibrium price for chocolate ice cream if the increased demand
outpaces the reduced supply. The equilibrium quantity of chocolate ice cream is likely
to decrease due to the limited availability of cream.

b. A new report by the Medical Association reveals that chocolate does, in fact,
have significant health benefits.

Effect on Demand: The new report highlighting the health benefits of chocolate
is likely to increase the demand for chocolate ice cream. Consumers may perceive
chocolate ice cream as a healthier treat, leading to an increase in demand.

Effect on Supply: There may not be a direct effect on the supply of chocolate ice
cream due to the health benefits report. However, if the increased demand is
substantial, ice cream manufacturers may respond by increasing their production to
meet the higher demand.

Equilibrium Price and Quantity: The increased demand for chocolate ice
cream can potentially lead to a higher equilibrium price if the supply does not keep
pace with the increased demand. The equilibrium quantity of chocolate ice cream is
likely to increase due to the higher demand.

c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla
ice cream.
Effect on Demand: The discovery of cheaper synthetic vanilla flavoring is
specific to vanilla ice cream and not directly related to chocolate ice cream. Therefore,
it may not have a direct effect on the demand for chocolate ice cream.

Effect on Supply: There may not be a direct effect on the supply of chocolate ice
cream due to the lower price of vanilla ice cream caused by cheaper synthetic vanilla
flavoring.

Equilibrium Price and Quantity: The equilibrium price and quantity of

chocolate ice cream are likely to remain relatively unaffected by the discovery of
cheaper synthetic vanilla flavoring.

d. New technology for mixing and freezing ice cream lowers manufacturers'
costs of producing chocolate ice cream.

Effect on Demand: There may not be a direct effect on the demand for
chocolate ice cream due to the new technology for mixing and freezing. However, if the
manufacturers pass on the cost savings to consumers in the form of lower prices, it
may lead to an increase in demand.

Effect on Supply: The new technology that lowers manufacturers' costs can lead
to an increase in the supply of chocolate ice cream. Manufacturers can produce more
chocolate ice cream at a lower cost, which can contribute to an increase in the quantity
available in the market.

Equilibrium Price and Quantity: The equilibrium price of chocolate ice

cream is likely to decrease if the cost savings from the new technology are passed on
to consumers. The equilibrium quantity of chocolate ice cream is likely to increase due
to the expanded production capacity resulting from the lower costs.

These effects are based on general economic principles and assumptions. The actual
market outcomes may vary depending on various factors such as market conditions,
consumer preferences, and the specific dynamics of the ice cream industry in Pakistan.
Q9. 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.

Answer:

a. The market for newspapers in your town:

Case 1: The salaries of journalists go up.

Effect on Demand: The demand for newspapers may not be directly affected by the
increase in journalists' salaries. However, if the higher salaries lead to improved
journalism quality or more exclusive news content, it could potentially attract more
readers and increase the demand for newspapers.

Effect on Supply: The increase in journalists' salaries can lead to higher production
costs for newspapers. If the increased costs are not offset by increased revenue or
efficiency improvements, it may result in a decrease in the supply of newspapers.

Equilibrium Price and Quantity: The effect on equilibrium price and quantity will
depend on the relative magnitude of the changes in demand and supply. If the
increase in demand due to improved journalism quality outweighs the supply reduction
caused by higher production costs, the equilibrium price and quantity of newspapers
may increase. However, if the supply decrease outweighs the demand increase, the
equilibrium price may rise, but the equilibrium quantity could decrease.

Case 2: There is a big news event in your town, which is reported in the
newspaper.

Effect on Demand: The occurrence of a big news event can significantly increase the
demand for newspapers. People may be interested in getting the latest information,
updates, and analysis related to the event, leading to a surge in newspaper demand.

Effect on Supply: The supply of newspapers will likely increase to meet the higher
demand resulting from the big news event. Newspaper companies may print additional
copies or allocate more resources to ensure an adequate supply of newspapers.

Equilibrium Price and Quantity: The increase in demand for newspapers can
potentially drive up the equilibrium price, especially if the supply cannot match the
sudden surge in demand. The equilibrium quantity of newspapers is likely to increase
due to the higher demand and increased supply to meet the market needs.

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 .
Effect on Demand: Making the Krugman and Wells economics textbook required
reading can significantly increase the demand for the textbook among students. It
creates a compulsory need for the textbook, leading to a higher demand.

Effect on Supply: The supply of the Krugman and Wells economics textbook will likely
remain unaffected by this specific event unless the increased demand prompts
publishers to print more copies or allocate more resources for production.

Equilibrium Price and Quantity: The increase in demand due to the textbook
becoming required reading can potentially drive up the equilibrium price if the supply
cannot meet the sudden surge in demand. The equilibrium quantity of the textbook is
likely to increase due to the higher demand.

Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

Effect on Demand: The use of synthetic paper and the subsequent reduction in
printing costs may not directly affect the demand for the Krugman and Wells
economics textbook.

Effect on Supply: The reduction in printing costs can lead to lower production costs
for the textbook. Publishers may be able to increase the supply of the textbook, as
lower costs make it more feasible to print additional copies.

Equilibrium Price and Quantity: The reduction in printing costs may result in a
decrease in the equilibrium price of the textbook. If the supply increases as a result of
the cost reduction, the equilibrium quantity of the textbook may also increase.

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Q10. 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. A and B are substitutes

B. A and B are complements

Answer:

a. If goods A and B are substitutes and the price of good B rises, it would affect the
demand and equilibrium in the market for good A.

Effect on Demand: The increase in the price of good B would lead consumers to
substitute it with good A, as it becomes relatively more affordable. This would result in
an increase in the demand for good A.
Equilibrium Price and Quantity: The increase in demand for good A would cause a
rightward shift in the demand curve, leading to a new equilibrium with a higher price
and quantity for good A

Graphically, it can be represented:

Price
^
|
P1 | D1
| / \
P0 | / \
| / \
| / \
| / \
------------------------------
Quantity

In the graph above, the original demand curve D0 shifts to the right to D1 due to the
increase in demand for good A when the price of good B rises. The new equilibrium is
at a higher price (P1) and a higher quantity.

b. If goods A and B are complements and the price of good B rises, it would impact the
demand and equilibrium in the market for good A differently.

Effect on Demand: When the price of good B rises, it reduces the demand for good B,
which in turn decreases the demand for its complement; good A. Consumers are less
willing to purchase good A without its complement, leading to a decrease in the
demand for good A.

Equilibrium Price and Quantity: The decrease in demand for good A would cause a
leftward shift in the demand curve, leading to a new equilibrium with a lower price and
quantity for good A.

Graphically, it can be represented

Price
^
|
P1 | D1
| / \
P0 | / \
| / \
| / \
| / \
---------------------------------
Quantity
In the graph above, the original demand curve D0 shifts to the left to D1 due to the
decrease in demand for good A when the price of good B rises. The new equilibrium is
at a lower price (P1) and a lower quantity.

The specific magnitude of the shifts in the demand curve will depend on the elasticity of
demand for goods A and B. The diagrams provided represent the general direction of
the shifts and their impact on equilibrium.

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The end