Submitted to : Mam Sara rizwan

Subbmitted by : Faizan malik

Registration no : l1S20ADBA0020
Course title : microecomincs for
bussines
 Mid term exam
Question no 1 :
Why is the demand for airplane ticket inelastic for last ticket
purchase?
Last-minute plane ticket are inelastic. Despite the fact that they take up a large
portion of income price changes still have a smaller than proportionate effect
because there're no antiquate substitutions and the purchase cannot be delayed.
Eg: if price increase 20% but demand increase 1%.
Question no 2 :
Which firm is most likely to have an elastic supply --- a candy
producer firm or automobile company ?
Automobile have high elastic supply as it change in price decreases quantity
demanded.
Example :
Price increases 10%
Quantity decreases 15%

Question no 3 :

What is cross price elasticity (Ecp)? Explain the relation between two goods if
(i) Ecp >0 ; and (ii) if Ecp <0. ?

Cross elasticity of demand is if 2 goods A and B are consumed together

then the demand for good A change to good B.
1 : if Ecp > 0 then it is complement
2 : if Ecp <0 then it is substitute.
Question no 4 :
Which of the following combination of goods and
compliments and which are substitute ?
a.  a mathematics class and an economics class
If the math class and the economics class do not conflict in
scheduling, then the classes could be either complements or
substitutes. Math is important for understanding economics, and
economics can motivate mathematics, so the classes could be
complements. If the classes conflict or the student has room for
only one in his schedule, they are substitutes.

b.  tennis balls and a tennis racket

Tennis balls and a tennis racket are both needed to play tennis,
thus they are complement

d.  a plane trip and a train trip to the same destination

Two modes of transportation between the same two points are
substitutes for one another.

Question no 5 :
Which are two subfields in which economics are divided ?

The two subfields of economics are microeconomics and macroeconomics.

Microeconomics is the study of how firms and families interact with
economy and make choices whereas macroeconomics is concerned with
the behavior of the economy as a whole.

Question no 6 :
Denial incomes declines , and as a result he buys more
meat . is meat is inferior or a normal good ?

An inferior good has a negative income elasticity of demand. ... But, when

his income rises, he will afford better quality foods, such as fine bread
and meat. ... When income rises you buy better quality, more expensive
tea.

Question no 7 :
Describe the role of prices in market economics ?

The price of goods plays a crucial role in determining an efficient

distribution of resources in a market system. Price acts as a signal for
shortages and surpluses which help firms and consumers respond to
changing market conditions. ... Falling price encourage people to buy, and
cause firms to try and cut back on supply.

Question no 8 :
An increase in the demand for notebooks raises the quantity
of notebooks not the quantity supplied ..is it true or false ?
This statement is false because increase in demand for notebook results in
an increased quantity supplied.
Increase in demand means a shift of demand curve to the right. It will
increase both price and quantity supplied.
There is shift of supply curve.

Question no 9 :
List and explain the determintes of the price elasticity of
demand and supply ?
Determinants of price elasticity of demand :
1 : substitute : have many substitute. A change in price have major
impact on demand.

2: time frame : selling umbrella in rain (short time) buy umbrella for long
term.
3: income share : bubble gum price increase (less elasticity) tnen
automobile

4: luxury vs necessity : food is necessity but increase in luxury

product will stop buying.

5: narrow of market : apple market is narrower their substtute is

banana. Food market have more substitute in same price or less.

Determents of supply :
1: More elastic : price increase will more increase in supply.
2 : Inelastic : price increases will cause less increase in supply

Question no 10 :
If demand is elastic how will an increase in price change total
revenue ?
When demand is elastic, that means a small
percentage change to the price will give you a bigger
percent change to the quantity demanded. ... And
because price and Qd move in opposite directions, this means
your sales will decrease more than the price rose. So you'll
experience a drop in total revenue .
Question no 11 :
How does elasticity helps explain why drug interdiction can
reduced the supply of drugs yet possible increase drug
related crime ?
If supply is lowered but demands is still same price must raise
With the highr price of drugs , there will be correlation and drugs related
cimes .
Question no 12 :
Which good have more elastic demand ?
a. Mystery novels have more elastic demand than required textbooks,
because mystery novels have close substitutes and are a
luxury good, while required textbooks are a necessity with no close
substitutes.
b. Beethoven recordings have more elastic demand than classical
music recordings in general. Beethoven recordings are a narrower
market than classical music recordings, so it is easy to find close
substitutes for them. Therefore, Beethoven recordings have more
elastic demand
c. Subway rides during the next five years have more elastic
demand than subway rides during the next six months. This is
because goods tend to have more elastic demand over longer time
horizons and inelastic demand over shorter time horizons.
Therefore, Subway rides have more elastic demand.
Question no 13 :
What is price ceiling and price floor ? with examples .
The most important example of a price floor is the minimum wage.
A price ceiling is a maximum price that can be charged for a
product or service. Rent control imposes a maximum price on
apartments in many U.S. cities. A price ceiling that is larger than the
equilibrium price has no effect.
Examples of price ceiling include price limits on gasoline, rents,
Common examples of price floors are the minimum wage, the price that
employers pay for labor, currently set by the federal government at $7.25
an hour.
Question no 14 :
How does a tax on a good effects the price paid by the
buuyers , the price received by the seller and the quantity
sold ?
In the end levying a tax moves the market to a new equilibrium where
the price of a good paid by buyers increases and the price
received by sellers decreases. The incidence of a tax does not depend on
whether the buyers or sellers are taxed.
Question no 15 :
Explain how buyers are willingless to pay , consumer
supplies,and demand curve are related
The height of the demand curve represents the buyers' willingness to
pay. Consumer surplus is the area below the demand curve and above the
price, which equals the price that each buyer is willing to pay minus the
price actually paid. Sellers' costs, producer surplus, and the supply
curve are all closely related.
Question no 16 :
Which information is contained in indifference curve ?why
are such curves are downward sloping and convex from the
origin ?
Each point on an indifference curve indicates that a consumer
is indifferent between the two and all points give him the same utility.
Description: Graphically, the indifference curve is drawn as a downward
sloping convex to the origin. The graph shows a combination of two goods
that the consumer consumes.
Question no 17 :
Which information is embodied in a budget line ? when shift
occurs why the money income is increase or decreased?
When money income increases then budget line shifts to the right because
consumer will have more money to spend and hence
their budget will increase. When money income decreases then budget line
shifts to the left means inward because consumer will have less money to
incur and hence their budget will decrease.
Question no 18 :
What is the marginal rate of substitution ? and what point
equilibrium at tendancy occurs ?
In economics, the marginal rate of substitution (MRS) is the rate at which
a consumer can give up some amount of one good in exchange for another
good while maintaining the same level of utility.