Question 1: Suppose that you have been hired as an Economic Researcher by OPEC and given the following schedule showing the world demand and supply for oil:
Price (P) ($/barrel) Quantity Demanded (Qd)
(millions of barrels/day) Quantity Supplied (QS)
(millions of barrels/day)
10 60 20
20 50 30
30 40 40
40 30 50
50 20 60
Answer the following questions:
a. At what price, the oil market will be in equilibrium situation?
b. If OPEC produces 50 million of barrels/day, calculate its Total Revenue (TR)?
c. If the price of oil rises from $40 to $50 per barrel, what will be the Total Revenue (TR) from oil sales? Also mention either TR will increase or decrease?
d. When the price changes from $30/barrel to $40/barrel, calculate Price Elasticity of Demand (Ed)?
e. When the price changes from $30/barrel to $40/barrel, calculate Price Elasticity of Supply (Es)?
Question 2: Define the Law of Supply? Keeping in view the Law of Supply, how the following factors will shift the supply curve? (Each answer must be supported by a neat diagram):
a. If costs of raw material increases in the plastics industry;
b. If new technology is introduced in the automobile manufacturing;
c. If OPEC decides to reduce oil prices in the Gulf Region;
d. If government introduces some new taxes in the construction sector.
Question 3: Define and explain ‘Law of Diminishing Returns with the help of diagram. What are the different stages of production in the short run?
Question-4: Define and explain ‘Price Discrimination (PD)' with the help of diagram. Also give examples of Price Discrimination from the real world?
Question 5: Suppose the quantity demanded of good (Qd) depends only on the price of the good (P), monthly income (M), and the price of a related good R (PR):
a. Construct the demand curve for the good when M = $1,000 and PR = $5. The equation for demand is Qd =
b. Interpret the intercept and slope parameters for the demand equation in part a.
c. Let income decrease to $950. Construct the new demand curve. This good is _____________________ (normal, inferior). Explain using your graph.
d. For the demand curve in part c, find the inverse demand function:
e. Let the price of good R increase to $6 (income remaining at $950). Construct the new demand curve. Good R is a ______________ (substitute, complement) good. Explain using your graph.
f. For the demand curve in part e, find the equilibrium price and quantity when supply function is as under;
PE = ____________ and QE = ____________
g. Construct the supply curve and verify your answer by showing equilibrium price and equilibrium quantity graphically.