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Q#1

List the determinants of demand.

Q2

What happens to a given demand curve if one of the determinants of demand change? Provide an example for demand and illustrate the examples by drawing correctly labeled graphs.

Q#3

Assuming hypothetical equilibrium in Demand/Supply Model of Apples, illustrate impact of following events:

1. Suppose the Doctors recommend eating Apples every morning. (
2. The Monsoon rains adversely affect the Apple Harvest.
3. The government announces increase in Wages of workers.
4. The price of petrol in the market comes down.
5. Consumers Income falls during government imposed Lockdowns due to health concerns.

Question#4

Given below is the Supply Schedule of Nestle Milk per liter:

Price of Milk per liter (in Rs) 100 200 300 400

Quantity Supplied per day in liters (in 1000s) 100 200 300 400

1. Use the above data to illustrate the Supply Curve in a graph with complete labels.
2. Assume Rs. 200 is the original price of milk per liter and 200,000 liters is the original quantity of supply.
3. Suppose the price rises from Rs. 200 to Rs. 300, what will be the amount of Quantity Supplied?
4. Illustrate the impact of (C) on the graph.
5. Is this a movement along the supply curve or shift of the curve?

Question#4

A recent study determined the following elasticities for Volkswagen Beetles:

Price elasticity of demand = 2

Income elasticity of demand = 1.5

The supply of Beetles is elastic. Based on this information, are the following statements true or false? Explain your reasoning.

1. A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%.
2. An increase in consumer income will increase the price and quantity of Beetles sold.

Question#5

Nile.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Nile.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.

Group A Group B

(sales per week) (sales per week)

Volume of sales before

the 10% discount 1.55 million 1.50 million

Volume of sales after

the 10% discount 1.65 million 1.70 million

1. Using the midpoint method, calculate the price elasticities of demand for group A and group B. (1 Mark)
2. Explain how the discount will affect total revenue from each group.
3. Suppose Nile.com knows which group each customer belongs to when he or she logs on and can choose whether or not to offer the 10% discount. If Nile.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?

Question#6

Quantities Purchased

Quantities Purchased

Income

Prices

Good X

Good Y

$30,000

Px = $6, Py = $3

2

20

50,000

Px = $6, Py = $4

5

10

Refer to Table.

1. Using the information in the table, calculate the income elasticity of demand for good X and characterize the good. Use the midpoint formula.

1. Can you calculate the income elasticity of demand for good Y? If you can, show your calculation and characterize the good. If you cannot, explain why.

Question#7

Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.