Microeconomics Answers

The number of cinema tickets in Karachi and the ticket fares are regulated. The fare currently charged is Rs.500 a ticket. The Cinema Association want to obtain government's permission to raise the fare to increase their revenues
Price (Rupees per ticket)
300,400,500,600,700
Quantity demanded (tickets per month)
160,120,80,40,0
a) Calculate the price elasticity of demand for cinema tickets as the fare rises from Rs.500 to Rs.600. Is the demand price elastic or inelastic for this fare rise? b) What happens to the cinemas’ total revenue if the fare rises from Rs.500 to Rs.600? Should the ticket sellers try to obtain permission to raise the fare? c) Calculate the price elasticity of demand for cinema tickets as the fare falls from Rs.500 to Rs.400. Is the demand price elastic or inelastic for this fare decrease? Should the Cinema Association willingly accept this new price?

In the context of Pakistan’s society for each of the following products, indicate the correct type of price elasticity of demand or supply and also justify your answer:
a) An exquisite painting to be sold at an auction (1 Mark)
b) Demand for Cancer-treating drug (1mark)
c) Production of gold mining (1 mark)
d) Demand for gold (1 mark)

Consider the utility function U(x, y) = 3x + y, with MUx = 3 and MUy = 1. a) Is the assumption that more is better satisfied for both goods? b) Does the marginal utility of x diminish, remain constant,or increase as the consumer buys more x? Explain. c) What is MRSx,y ? d) Is MRSx,y diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve? e) On a graph with x on the horizontal axis and y on the vertical axis,draw a typical indifference curve (it need not be exactly to scale, but it needs to reflect accurately whether there is a diminishing MRSx,y).Also indicate on your graph whether the indifference curve will intersect either or both axes.Label the curve U1. f) On the same graph draw a second indifference curve U2,with U2 > U1.

Sandy consumes only hamburgers (H) and milkshakes (M). At basket A, containing 2 hamburgers and 10 milkshakes,his MRSH,M is 8.At basket B,containing 6 hamburgers and 4 milkshakes, his MRSH,M is 1/2. Both baskets Aand Bare on the same indifference curve.Draw the indifference curve, using information about the MRSH,M to make sure that the curvature of the indifference curve is accurately depicted. 3.12. Adam likes his caffé latte prepared to contain exactly 1/4 espresso and 3/4 steamed milk by volume. On a graph with the volume of steamed milk on the horizontal axis and the volume of espresso on the vertical axis,draw two of his indifference curves,U1 and U2,with U1 > U2.

a) Elaborate on the concepts of Demand Schedule and Demand Curve, is there any relationship between them? What is reason behind the downward slope of demand curve?

b) Economy can be represented by economic models. One of the models we use to understand economy is a “Circular Flow Diagram”. Sketch a Circular flow model and explain the flow of money and flow of goods and services and factors of production caused by the following activities.
i. Kaleem pays a shopkeeper Rs.150 for a liter of milk. (1 Mark)
ii. Mustaqeem while working at a fast-food restaurant earns Rs.500 per hour. (1 Mark)
iii. Sana spends Rs.500 on a haircut. (1 Mark)
iv. Mustafa receives Rs.200,000 from his 10 percent ownership of Salman Chemicals Ltd

Question 04 08 Marks
Price (Rupees per Ice-cream cup) Quantity demanded (Ice-cream cup per month) Quantity Supplied (Ice-cream cup per month)
140 500 1500
120 750 1200
100 1000 1000
80 1250 750
60 1500 600
40 1750 300

a) Plot the demand and supply curves and show the equilibrium price and quantity. Also, briefly explain if law of demand and supply holds true in this case. (2 Marks)
b) Is there surplus or shortage in the market at price Rs.40? At price Rs.120? (2 Marks)
c) Suppose if the price of frozen yogurt decreases, elucidate the change it might cause on the ice-cream market given the consumption behavior and also illustrates the same through using 2-dimensional space. In your opinion what type of elasticity best describes this situation? (3 marks)
d) Suppose the price of milk decreases from the equilibrium price. Explain what will happen to the supply curve and also indicate the same on the graph. (1mark)

a) Can you identify and explain your family’s interaction in the market for factors of production and your family’s interaction in the market for goods and services.

Suppose the number of employed people in Pakistan is 20.5 million. The unemployment rate in this economy is 8.8 percent, and the labor force participation rate is 65 percent. (1.5 Marks)

What is the size of the labor force and working-age population?

How many people are unemployed?



Explain and analyze different government policies which affect the unemployment rate in Pakistan? (1.5 Marks, Maximum 200 words).

Before June 2020, the labor market in Pakistan was at equilibrium with an equilibrium wage (W
E) of Rs. 15,000 and equilibrium quantity of labor (LE) 10 million. In the last week of June, 2020, government of Pakistan imposed a minimum wage Act raising the minimum wage to Rs. 20,000. Using a graph, explain the effect of imposition of minimum wage on unemployment in labor market of Pakistan (2 Marks).