PRINCIPLES OF MICROECONOMICS (HSS – 1021)ASSIGNMENT – IV

BRANCH: - BT/CSE/CSIT/CE/ME (1ST SEM B.TECH. & DD JULY-2015)DATE OF ASSIGNMENT GIVEN: - 17/October/2015LAST DATE OF ASSIGNMENT SUBMISSION: - 29/October/2015

1 The supply and demand function for labour in the local labor market is given belowQdL= 1250 – 25W and QsL= -550 + 25W, Where QL

d= Quantity demanded oflabour, QL

S= Quantity supplied of labour, and W = Wage ratea) Plot the demand and supply function in a graph and determine the equilibrium

wage rate and quantity demanded and supplied for labor in local labor market.b) Compute consumer surplus, producer surplus and total surplus corresponding to

equilibrium wage rate.c) Analyse the market situation, if actual wage rate is below equilibrium wage rate,

i.e., Rs 30, by drawing a well-labelled demand and supply diagram of the situation.d) If the Government fixes the minimum wages at Rs. 38, what happens in the local

labour market? Compute consumer surplus, producer surplus and total surpluscorresponding to minimum wage rate.

e) Analyse the welfare effects of minimum wage policy implemented by governmentand comment whether economic welfare will increase or fall by comparingequilibrium wage rate with minimum wage rate. Use the concept of consumersurplus, producer surplus and total surplus for your analysis.

2 Imagine that India is a small country for producing mobile handsets. The domesticdemand and supply function for mobile handsets is given:QD = 3000 – 2P and QS = -1000 + 2P

a) By using above demand and supply function, prepare a demand and supplyschedule in given price 800, 900, 1000, 1100 & 1200 and through scheduledetermine the equilibrium price and quantity.

b)Plot the demand and supply function in a graph and determine the domestic priceand equilibrium quantity. Analyse the market situation if actual price of themobile hand set is Rs.900 &Rs. 1100

c) If free trade is restricted then corresponding to domestic price and quantity,analyse economic welfare of India by using the concept of consumer surplus,producer surplus and total surplus.

d) If there is free trade and the world price for mobile hand set is Rs.800/-, thensuggest whether India will import or export mobile handsets and how many units.

e) Analyse the welfare effects of free trade by using the concept of consumer surplus,producer surplus and total surplus.

3 The following information is given relating to market demand and supplyequations for coffee in Ranchi market.QD = 100 – 5p and QS = - 50 + 10P

a) Plot the demand and supply function in a graph and determine the market clearingprice and equilibrium quantity for coffee in Ranchi market.Analyse the market situation, if actual price of coffee is Rs 09/- and Rs 11/-

b) Compute consumer surplus, producer surplus and total surplus before tax.c) Government now decided to impose a tax amounted Rs. 12/- on seller for selling a

cup of coffee. Analyse welfare effects of tax by using the concept of consumersurplus, producer surplus, government revenue and total surplus.

d) In order to increase tax revenue government decided to increase the tax size percup of coffee from Rs 12/- to Rs 13.50/-. Analyse the situation and suggestwhether the government policy of increasing the tax size is justified or not.

4 Imagine, India is a small country producing and consuming Black Chocolatedomestically. The domestic demand and supply equations for Black Chocolategiven:QD = 200 – 10P and QS = 10P

a) Draw a well-labelled graph of the situation and determine domestic equilibriumprice and equilibrium quantity.

b) Corresponding to domestic equilibrium price determine consumer surplus,producer surplus and total surplus.

c) If world price is Rs 05, then will India import or export Black Chocolate and howmany units? Also corresponding to world price compute consumer surplus,producer surplus and total surplus.

d) Now, Govt of India is placing Rs 01 tariff on each unit of black chocolate imported.Analyse the welfare effects of tariff by using the concept of consumer surplus,producer surplus, government revenue and total surplus

5 The following information is given relating to market demand and supplyequations for ice-cream in Delhi market.QD = 50 – 5p and QS = - 10 + 5P

a) By using above demand and supply function, prepare a demand and supplyschedule in given prices 4, 5, 6, 7 & 8 and determine the equilibrium price andquantity utilising the demand and supply schedule.

b) Plot the demand and supply function in a graph and show the market clearingprice and equilibrium quantity for ice-cream in Delhi market.Analyse the market situation, if actual price of ice-cream is Rs 05/- and Rs 07/-

c) Compute consumer surplus, producer surplus and total surplus at market clearingprice.

d) In order to increase revenue, Government decided to impose a tax amounted Rs.02/- per unit of ice-cream on seller. How much buyer will pay and how much sellerwill receive per unit of ice-cream after imposition of tax?

e) Analyse the welfare effects of tax by using the concept of consumer surplus,producer surplus, government revenue and total surplus.

6.The following information is given for producing and selling ice cream cones.

L Q AP MP TFC AFC TVC AVC TC ATC MC TR PROFITFormula→

0 01 82 203 364 485 566 607 60

Where, L = Labor, K = Capital, Q = Output, Q = f (L, K), L is variable & K is fixed factor inputIn this ice cream producing company the only fixed cost is the machine cost, which isRs.100.00The wage rate per labor engaged is Rs 5.00.The selling price per unit of ice cream cone in the market is Rs 10.00

a) Prepare the above table and level the graph for each cost elements individuallyb) Show the relationship between AP & MP with the help of suitable diagramc) Show the relationship between AVC & MC with the help of suitable diagramsd) Show how AP, MP & AVC, MC curves are mirror image to each other with suitable

diagram. Also discuss the relationship between production and cost of production.

N.B.:-

1. Assignment must content Branch, Section, Regd. No. & Name on the top of thefirst page.

2. Assignment must be hand written.3. Assignment preferably be written on both side of A4 size (Xerox) paper.4. No assignment will be entertained after 02.30pm of 29/October/2015

5. The branch and section for which 29th October 2015 is day off, they haveto ensure that assignment should reach on or before the scheduled dateand time. No extension of time and date will be entertained.

6. Submit the assignment in the class or in the faculty room on or before due date. E-437: ME(E/F) , CE (A/B/C), BT (C) E-439: CSE (A/B/C/D), CSIT (D) E-443: CSE (E/F), CSIT (A/B/C) E-445: ME(A/B/C/D) Don’t drop your assignment in the faculty room, if door is

locked/closed. In emergency you can submit the assignment in any one of the

above mentioned room.

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