Q.2 Under the demand and supply analysis, let us assume that the price of Hard wood is $50 per unit. Now the government has imposed 5 % tax to the seller which increased the cost of production. Explain the following with the help of diagram.

i.Do the cost of production affects Demand and Supply? (explain with the reference of necessities and

Non-essential goods)

ii. Will there be a shift or movement along the supply curve? (explain with the reference of necessities

and non-essential goods)

iii.In order to maintain the same profit as before imposition of tax, how much price the seller should

increase presuming that the a) demand for the product is perfectly inelastic and

b) demand of the product is perfectly elastic

iv. What are the determinants of demand and supply of any product.

(4 marks)

Q.3 Briefly explain the following concepts.

i. Economics is concerned with the analysis of scarcity of resources and plenty of demands". Discuss.

(2 marks)

ii. What is the difference between fixed and variable costs? Describe the shape of the total variable cost curve and explain why the vertical distance between the total cost and total variable cost curves is constant.

(2 marks)

iii. Would do you expect the cross elasticity of demand for cereal with respect to changes in the

price of milk to be positive or negative? Why? Would the cross elasticity of demand for cereal with respect to the price of butter be positive or negative? Explain.

(2 marks)