ECO101 (Fall 2015) - Assignment 1 (Questions might have errors)

Question-1

Exam scores (%) (Y) Tennis

(hours/week) (X)
A 80 0
B 78 1
C 75 2
D 70 3
E 60 4
F 40 5

a) Show any inefficient point, efficient point and an unattainable point on the
PPF. (3)
b) Explain Opportunity Cost and Marginal Cost using the PPF. (1+4)
c) Justify an efficient point using Marginal Cost and Marginal Benefit curve. (6)
d) If using internet improves exam scores without adversely affecting tennis
hours, how will the graph change? (No need to use any value) (2)

Question-2

Kings Hot Cake

Confectionery
Item Quantity in 1 Quantity in 1
hour hour
Pie 40 100
Pastry 400 200

a) Calculate the opportunity cost of producing a pie for each of the bakery. (2)
b) Each bakery is required to spend equal time for each product. How many pies
and pastries will each bakery produce before trade? (2)
c) Which bakery will specialize in which product? Why? (4)
d) How many pies and pastries will each bakery produce if they decide to trade?
(2)
e) Kings confectionery can either trade 1 pie with 4 pastries or trade 1 pie with
12 pastries. Which option should it choose? Why? (2)
f) How many pies and pastries will each bakery have after trade? How much is
the gain from trade for each bakery? Show the gains from trade graphically.
(4+2+2)

Question-3

Consider the market for Maida. (No need to use any value)

a) Explain the shapes of demand and supply curves. (1+2)

 b) Justify the equilibrium price and quantity using demand and supply curves.
(6)
c) Show graphical change if price of Atta decreases. Justify. (1+3)
d) Show graphical change if number of suppliers of Maida increases. Justify. (2)
e) If d and e occurs simultaneously, show different possibilities of new
equilibrium. (6)

Question-4

Consider the market for Bus rides.

Price Quantity Quantity

(Tk.) Demanded Supplied
0 150 0
1 125 25
2 100 50
3 75 75
4 50 100
5 25 125
6 0 150

a) Explain how elasticity varies along the same graph. (9)

b) Explain graphically using formula how revenue varies with elasticity (No need
to use any value). (3)
c) The XED for bus with price of tempo is +1.4. The XED for bus with price of
carpool is +0.4.
Explain the relationship of bus with tempo and carpool. (2)
d) An increase in income makes people shift from bus to CNG. Name the type of
goods. If there are two YED, -0.8 and +1.2, which YED belongs to which ride?
Justify the elasticities. (1+1+2)