PRINCIPLES OF MICROECONOMICS (HSS – 1021)

ASSIGNMENT – III
BRANCH: CSE (N/P/Q/R) – 1ST SEM B.TECH – AUGUST-2019
DATE OF ASSIGNMENT GIVEN: - 31/OCTOBER/2019 (03.00PM)
DATE & TIME OF ASSIGNMENT SUBMISSION: - In the Class as per the schedule

SCEDULE FOR SUBMISSION OF ASSIGNMENT - I

SECTION BRANCH DATE DAY
CSE N 05.11.19 TUESDAY
CSE P 07.11.19 THURSDAY
CSE Q 05.11.19 TUESDAY
CSE R 07.11.19 THURSDAY
Questions

1. The market demand and supply schedules for rice is given below:
Price (Rs./Kg) 2 4 6 8 10 12 14
Demand (MT) 6 5.5 5 4.5 4 3.5 3
Supply (MT) 4 4.5 5 5.5 6 6.5 7

Answer the following questions by drawing suitable demand supply diagram.

a) Find the market equilibrium price and quantity of rice.
b) Government is thinking of announcing the Minimum Support Price (MSP) of Rs.8 per kg of
rice. State whether the MSP decided by Government is binding or not and why?
c) If Government fixes the Minimum Support Price (MSP) at Rs. 10 per kg of rice, what will be
its effect in the rice market?

2. The quantities demanded and supplied at different prices in the bagel market in Yellow Springs,
Ohio, are shown in the table below.

a) Sketch a graph to show the demand and supply for bagels in Yellow Springs. What is the
equilibrium price, and what are the quantities demanded and supplied at the equilibrium
price?
b) Suppose that the village mayor, David Foubert, decides that bagels are extremely healthy for
villagers to eat and issues an edict that the price of a bagel in Yellow Springs is never to
exceed $.40. Is Foubert establishing a price floor or a price ceiling? What are the quantity
demanded and quantity supplied at this price? Is there a problem of excess demand or excess
supply? How will consumers react to this policy? Bagel producers? Explain.
 c) After a few months, Foubert decides that he has made a mistake. The price of bagels is too
low at $.40. So, he issues another edict that the price of bagels is never to fall below $.60. Is
this a price ceiling or floor? Discuss the ramifications of this price change.

3. Suppose that you estimate the demand and supply functions for cheese in the cheese market as
QD = 800 – 5P and QS = -200 + 5P, where QD and QS stand for demand for and supply of cheese
(measured in kg) and P stands for the price of cheese (measured in Rupees per kg). Now, the
Government proposes a price ceiling of Rs.80 to protect the interest of cheese consumers. Justify
whether the proposed price ceiling is binding or not? Also analyse impact of price ceiling on market
outcome. Use appropriate diagram to justify your answer.

4. Suppose that you have been hired to analyze the impact on employment from the imposition of a
minimum wage in the labour market. Further suppose that you estimate the following demand and
supply functions for labour:

Ld = 1000 – 4W and Ls = 6W
where Ld and Ls stands for demand and supply of labour (measured in thousands of workers)
and W stands for the wage rate (measured in Rupees per hour)
(a) What wage rate prevailed in the market before declaration of minimum wages by government
and how many labourers were employed at this wage rate?
(b) Suppose the Government proposes a minimum wage is Rs.120. Whether the proposed minimum
wage is binding or not? Justify.
(c) What is the effect of minimum wage in the labour market?

5. Using the diagram given below answer the questions from (a) to (e)
P r i ce
300

275

250 S' S
225

200

175

150

125

100

75

50

25
D D'

25 50 75 100 125 150 175 200 Quantity

a) If the supply curve is S, the demand curve is D, and the equilibrium price is Rs.100, what is the
producer surplus?
b) If the demand curve is D and the supply curve shifts from S’ to S, what is the change in producer
surplus?
c) If the supply curve is S and the demand curve shifts from D to D’, what is the change in producer
surplus?
d) If the supply curve is S and the demand curve shifts from D to D’, what is the increase in producer
surplus to existing producers?
e) If the supply curve is S and the demand curve shifts from D to D’, what is the increase in producer
surplus due to new producers entering the market?

6. The demand and supply functions for good ‘X’ is given as follows
Qd = 24 - 2P and Qs = 2P,
where, Qd and Qs are quantity demanded and supplied (in no) respectively and P is the price of the
commodity (in Rs.)
Represent the demand and supply functions in a graph and answer the followings.
(i) What price would result from market-clearing?
(ii) At the equilibrium price, what is the consumer surplus, producer surplus and total surplus?
(iii) If price is Rs.10, what is the consumer surplus, producer surplus and total surplus?
(iv) If price is 2, what is the total consumer surplus, producer surplus and surplus?
(v) At which price market is efficient and why?

INSTRUCTIONS TO BE FOLLOWED BY THE STUDENT:

1. Assignment preferably be hand written on both side of A4 size (Xerox) paper,

and NOT IN A NOTE BOOK.
2. Assignment must content Branch, Section, Regd. No. & Name on the top of the first
page.
3. Diagrams (if any) must be constructed by using PEN/PENCIL and SCALE with proper
naming and scaling of the axis.

4. For any emergencies, students are directed to submit the assignment on or before
due date in faculty chamber E-439

5. Students are directed not to drop assignment in the faculty chamber, if door is
locked / closed.
6. No assignment will be entertained after due date & time of submission.

7. STUDENTS ARE ADVISED TO KEEP A SET OF PHOTOCOPY OF THE ASSIGNMEN BEFORE

SUBMISSION, FOR FUTURE REFERENCE
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