1.

Assume a country produces haircuts and shirts with inputs of labour. The country has 1000 hours of labour available.A haircut requires hour of labour, while a shirt requires 5 hours of labour.

a.Construct country's production- possibility frontier.

b.The country is faced with massive unemployment. How will the PPF be impacted? Explain and indicate on graph.

c.The country discovers new technology and moves towards automation. Justify how this will impact the PPF for the economy. Also, indicate the same through the graph.

2.

In past 50 years the frozen food industry in U.S has grown from $1billion to $27 billion. Discuss the role of opportunity cost in our lives with regards to this huge growth in the frozen food market in the U.S

3.

The number of cinema tickets in country 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 and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for cinema tickets:

Price (Rupees per ticket)

Quantity demanded (tickets per month)

300

160

400

120

500

80

600

40

700

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?

4.

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.

b)Is there surplus or shortage in the market at price Rs.40? At price Rs.120?

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?

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.

5.

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

b)Demand for Cancer-treating drug

c)Production of gold mining

d)Demand for gold