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Microeconomics (Ec0402) : Assignment # 01

The document discusses: 1) Pakistan's electricity sector and its ongoing issues balancing supply and demand. 2) A supply and demand table to determine the equilibrium price of Rs. 26 per unit. 3) The price elasticity of demand is -2.18 (inelastic) and the price elasticity of supply is 1.5 (elastic) at a price of Rs. 24 per unit.

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41 views

Microeconomics (Ec0402) : Assignment # 01

The document discusses: 1) Pakistan's electricity sector and its ongoing issues balancing supply and demand. 2) A supply and demand table to determine the equilibrium price of Rs. 26 per unit. 3) The price elasticity of demand is -2.18 (inelastic) and the price elasticity of supply is 1.5 (elastic) at a price of Rs. 24 per unit.

Uploaded by

hassanjaved47_313770
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MicroEconomics (EC0402) MC
Assignment # 01

Case No 01 Marks (10)

Pakistan electricity sector is a developing market. For years, the matter of balancing the country's
supply against the demand for electricity had remained an unresolved matter. According to
Pakistan Economic Survey 2018-19, the installed electricity generation capacity reached 34,282
megawatts (MW) in Jul Mar 2018-19 compared to 33,433 megawatts (MW) in the corresponding
period of previous year, recording a 2.5% growth. Despite the fact that Pakistan’s installed
capacity to generate electricity has surged up, this sector is still facing manifold issues. Let’s
suppose the quantity demanded and quantity supplied at different prices per unit of electricity are
given in the following table:

Requirements:
Keeping in mind the above table, you are required to:

A. Identify the per unit equilibrium price of electricity.


B. Calculate the price elasticity of demand and price elasticity of supply when
per unit price of electricity is rupees 24.

Quantity Demanded Quantity Supplied


Per unit Price (Rupees)
(Thousand MV) (Thousand MV)
20 25 14
24 22 16
26 18 18
28 16 20

Answer

A: The equilibrium price of electricity is

Step 1: Set quantity demanded equal to quantity supplied and check if they are equal

Per unit Price Quantity Quantity Supplied


Qd x P = Qs x P Equal or Not
(P) Demanded (Qd) (Qs)
20 25 14 25 x 20 = 14 x 20 Not Equal
24 22 16 22 x 24 = 16 x 24 Not Equal
26 18 18 18 x 26 = 18 x 26 Equal
28 16 20 16 x 28 = 20 x 28 Not Equal

B: The price elasticity of demand and supply is given as


The Price elasticity of demand = [% change in Q.D.] / [% change in Price]
Where
% change in Price = [ (26 – 24) /24 ] x 100 = 8.33%
And
% change in Q.D = [ (18 - 22) /22 ] x 100 = -18.19%

So, the Price elasticity of demand (PED) = % change in Q.D. / % change in Price
                                                           = -18.19/8.33
                                                           = -2.18
Also,
% change in Q.S = [ (18 - 16) /16 ] x 100 = 12.5%

So, the Price elasticity of Supply (PES) = % change in Q.S. / % change in Price
                                                           = 12.5 / 8.33
                                                           = 1.5
Hence, the price elasticity of demand (PED) is inelastic because, the PED < 1 while the price
elasticity of supply (PES) is elastic because, the PES > 1

Case No 02 Marks (10)

Meat is a consumable food that appears in various forms in Pakistan livestock markets including
beef, mutton and poultry. Pakistan livestock sector has 50% share in agricultural GDP. Meat and
poultry are great sources of protein. They also provide lots of other nutrients like iodine, iron,
zinc, vitamins (especially B12), and essential fatty acids. The high cost of a nutritious diet can
worsen nutrition outcomes, especially for low-income households. Consumer Price Index (CPI)
is used to assess the situation of Inflation. The monthly price review shows the prices of 53
items, including beef, mutton and chicken in 17 major cities of Pakistan. The information about
nominal prices and CPI of beef, mutton and chicken for the year 2019 and year 2020 is given
below:

Nominal Price in Price


Item Unit Year CPI
Faisalabad Real
April- 2019 375.00 336.48
Beef Kg
April- 2020 450.00 372.48 ?
April- 2019 950.00 350.53
Mutton Kg
April- 2020 1000.00 380.63 ?
April- 2019 179.88 225.63
Chicken,live Kg
April- 2020 128.00 168.32 ?

Requirements:
Keeping in mind the above case and assuming April-2019 as the base year, find the real price of
beef, mutton and chicken for April-2020.
Answer

Beef Real Price:

Real Price = [ CPI (Base Year) / CPI (Current Year) ] x NP (Current Year)
Real Price = [ 336.28 / 372.28 ] x 450
Real Price = 406.48

Mutton Real Price:

Real Price = [ CPI (Base Year) / CPI (Current Year) ] x NP (Current Year)
Real Price = [ 350.53 / 380.63 ] x 1000
Real Price = 920.6

Chicken (Live) Real Price:

Real Price = [ CPI (Base Year) / CPI (Current Year) ] x NP (Current Year)
Real Price = [ 225.63 / 168.32 ] x 128
Real Price = 171.58

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