Case Study
Case Study
ECN-201: Principles of
Microeconomics Summer 2020
Assignment -1
(Total Marks –
20)
1. Case
Study
Fast food restaurants in Dhaka are having a difficult time. Rising beef prices have
reduced the profit margin of restaurants, having beef burgers as their specialties. They
are not able to pass on higher prices to their customers through the sale of beef burgers.
Instead, the fast food restaurants have responded by promoting sales of chicken burgers
and fish burgers.
The beef price has risen due to increased cost of raising cattle. However, due to
recession the fast food restaurants are enjoying some benefits because many customers
are eating at these fast food restaurants, instead of eating at expensive restaurants.
a. With reference, to the case explain the cause of the increase in beef price. Use a
supply
and demand diagram to explain your answer. (4) b. Using cross elasticity of
demand, discuss the likely relationship between the price of
beef and the demand for chicken and fish. (3) c. Assess whether beef and beef
burgers are likely to be normal goods or inferior goods, in
this case. (3)
2. The equilibrium price of rice is TK. 25 per kilogram and 15 tons of rice is demanded and
supplied at this price. The government decides to set the price at Tk. 22 per kilogram and at
this price the quantity demanded is 20 tons and quantity supplied is 10 tons of rice.
a. If the price control is binding, then identify, if the government’s policy is a price
ceiling
or a price floor? (1) b. Explain the impact of this policy with the help of diagram. (5)
3. As Sarah’s income increases from $130 to $170 her demand for bus ride changes from
15 to 10. Calculate her income elasticity of demand and identify if the bus ride is normal
good or inferior good for her. (Show all steps) (4)
1