Mid Term Question
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ECO401 ASSIGNMENT NO. 1 FALL 2022 |
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SEMESTER FALL 2022
ECONOMICS (ECO401)
ASSIGNMENT
MARKS: 15
DUE DATE: DECEMBER 02, 2022
The Case:
Pakistan is
producing very limited percentage of oil to meet the overall demand of the country. The indigenous oil
production is constrained by technological, technical and financial constraints. This necessitates import of
crude oil and other oil products in large quantities to meet significant
share of the total demand. Statistics identified that the import bill of oil grew by
95.9 percent to US$17.03 billion during July-April FY2022 as compared to US$8.69 billion during the corresponding period
last year.
Suppose the demand and supply
equations of crude oil are given as follows:
Qs = 250 + 0.30P
Qd =340 - 0.10P
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Requirement:
a) Find the equilibrium price and
quantity of crude oil.
b)Find out the price elasticity of
demand of crude oil at equilibrium price and quantity.
c) If the government imposes a tax of
Rs. 25/litre and price becomes Rs. 250 per litre then calculate the quantity demanded
and quantity supplied at new price.
Marks: (5+5+5)
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(a)
Find the
equilibrium price and quantity of crude oil.
Solution:
Crude oil demand = Crude oil
supply
Qd=Qs
340
-0.10P = 250 + 0.30P
340-
250 = 0.3OP + 0.1OP
90 =
0.40P
90/0.40
= 0.40P/0.40
225=P
P=225
Crude oil demand = Qd = 340-0.10P
= 340 –
0.10(225)
=340 – 22.5
Qd=317.5
Crude oil
Supply = Qs = 250 + 0.30P
= 250 +
0.30(225)
= 250 + 67.5
Qs =317.5 Ans
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(b) Find out the price elasticity of
demand of crude oil at equilibrium price and quantity.
Formula for Point Elasticity = E = (∆Q/ ∆P)
* (P / Q)
=-0.10 *0.70
= -0.070
=-0.070 in
elastic
= 340 – 0.10P
=-0.10
= (P/ Q)
=225/317.5
= .70 Ans
(c)
If the
government imposes a tax of Rs. 25/litre and price becomes Rs. 250 per litre then calculate the quantity demanded
and quantity supplied at new price.
Crude oil demand = Qd=
340 -0.10P
= 340 –
0.10(250)
= 340 – 25
Qd =315
So, the demand of crude oil decreases.
Crude oil supply =Qs = 250+0.3OP
=250 +0.30(250)
= 250 + 75
=325 Ans
So, the Supply of crude oil Increases.
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