The price system and the microeconomy Banker

1. (a) Printers and ink cartridges are complements. The price of printers falls sharply. What is most likely to happen in the market for ink cartridges?A price falls and quantity bought risesB price rises and quantity bought risesC price rises and quantity bought fallsD price and quantity bought are unchanged [1]

The daily market for tomatoes in Karachi is described by:Qd = 240 − 4PQs = −30 + 5Pwhere P is the price in Rs per kg and Q is in thousand kg per day.

1. (a) Calculate the equilibrium price and quantity. [2]
2. (b) The city government fixes the price at Rs 24 per kg. Calculate the excess demand at this price. [2]
3. (c) Explain how, without price control, the price mechanism would remove a shortage in this market. [3]

1. (a) Beef and leather are in joint supply. Demand for beef from restaurants in Lahore rises. Other things equal, what happens in the leather market?A Supply of leather falls and its price risesB Demand for leather rises and its price risesC Supply of leather rises and its price fallsD Demand for leather falls and its price falls [1]

Invented data. In 2025 floods cut a South Asian country's cotton crop by 28%. The world price of raw cotton rose from 78 US cents per pound in 2024 to 96 US cents per pound in 2025.

1. (a) Calculate the percentage change in the world price of cotton between 2024 and 2025. Give your answer to one decimal place. [2]
2. (b) Explain, with the help of a demand and supply diagram, the likely effect of the rise in the cotton price on the market for polyester fibre. [3]
3. (c) Cottonseed oil is produced from the seeds left after cotton is ginned. Consider the effect of the smaller cotton crop on the market for cottonseed oil. [3]

1. (a) Explain how the market for a good is linked to the markets for its complements and for goods produced in joint supply with it, and consider whether a fall in the price of a good will always change the equilibrium in a related market. [8]

The Punjab government is considering a subsidy for each electric motorcycle sold in Lahore. Most motorcycles in the city currently run on petrol.

1. (a) Identify the relationship between electric motorcycles and electricity, and between electric motorcycles and petrol motorcycles. [2]
2. (b) Assess whether a government subsidy for electric motorcycles in Lahore will reduce the price of petrol. [6]

The market for fitness bands in Dubai is described by Qd = 500 − 10P and Qs = 50 + 5P, where P is the price in US$ and Q is in thousands per month.

1. (a) Calculate the original equilibrium price and quantity. [2]
2. (b) Rising incomes change demand to Qd = 560 − 10P and a fall in component costs changes supply to Qs = 80 + 5P. Calculate the new equilibrium price and quantity. [2]
3. (c) Explain why, when demand and supply both increase, the direction of the change in equilibrium price cannot be predicted without knowing the size of each shift. [3]

1. (a) A household's monthly income rises from Rs 40,000 to Rs 46,000. The number of restaurant meals it buys in a year rises from 200 to 236. What is its income elasticity of demand for restaurant meals, and what kind of good are they?A 0.83, a normal good that is a necessityB 1.2, a normal good that is income elasticC −1.2, an inferior goodD 1.2, an inferior good [1]

A supermarket in Islamabad raises the price of loose tea from Rs 1,200 to Rs 1,380 per kg. Over the next month its sales of instant coffee rise from 5,000 to 5,450 jars.

1. (a) Calculate the cross elasticity of demand for instant coffee with respect to the price of tea. [2]
2. (b) State what the sign of your answer shows about the two goods. [1]
3. (c) Explain one way the supermarket could use this information. [2]

Invented estimates of income elasticity of demand (YED) for goods bought by households in Pakistan:Wheat flour: 0.2Motorcycles: 1.8Second-hand clothing: −0.4Private tuition: 1.3

1. (a) Identify the inferior good in the table and explain how you know. [2]
2. (b) Real household incomes are forecast to fall by 5%. Calculate the percentage change in demand for motorcycles and for second-hand clothing. [2]
3. (c) Explain how a motorcycle manufacturer could use the YED estimate when planning production. [3]

A games company estimates that the cross elasticity of demand between its consoles and its games is −2.5. It sells 40,000 games a month and plans to cut the price of its consoles by 8%.

1. (a) Calculate the expected percentage change in sales of games and the new monthly sales. [2]
2. (b) Consider whether cutting the price of its consoles is likely to increase the firm's total profit. [4]

1. (a) Assess whether income elasticity of demand is more useful than cross elasticity of demand to a firm planning its production for the next five years. [12]

A cinema in Islamabad cuts its ticket price from Rs 1,000 to Rs 800. Weekly ticket sales rise from 2,500 to 3,250.

1. (a) Calculate the price elasticity of demand for the tickets. [2]
2. (b) Calculate the change in the cinema's weekly total revenue. [2]
3. (c) Explain how your answer to (b) is linked to your answer to (a). [2]

1. (a) A bus company raises its fares by 20%. Its total revenue from fares rises by 8%. What is the price elasticity of demand for its bus journeys?A −0.4B −0.5C −0.6D −2.5 [1]

1. (a) Explain why the price elasticity of demand for petrol is likely to be lower in the short run than in the long run. [4]
2. (b) Consider whether a government should use price elasticity of demand when deciding which goods to tax. [4]

The demand for a brand of bottled water is Qd = 120 − 2P, where P is the price in Rs and Q is in thousand bottles per week.

1. (a) Calculate the price elasticity of demand when the price rises from Rs 10 to Rs 12. [2]
2. (b) Calculate the price elasticity of demand when the price rises from Rs 50 to Rs 55. [2]
3. (c) Explain why the price elasticity of demand changes along this demand curve even though its slope is constant. [3]

1. (a) Explain the factors that determine the price elasticity of demand for a product and consider whether a firm selling a branded product, such as a soft drink, can make the demand for its product more price inelastic. [8]

1. (a) Which event would cause a movement along the demand curve for rice, rather than a shift of the demand curve?A a poor harvest that raises the price of riceB a rise in the price of wheat flourC a rise in household incomesD an advertising campaign promoting rice [1]

1. (a) Distinguish between a change in quantity supplied and a change in supply. [2]
2. (b) State two events that would shift the supply curve of mangoes in Multan to the left. [2]

Weekly demand for milk (litres) by three households in a street:Price Rs 200: household X 7, Y 5, Z 4Price Rs 220: X 6, Y 5, Z 3Price Rs 240: X 5, Y 4, Z 2

1. (a) Calculate the market demand at each price. [2]
2. (b) A fourth household moves into the street. It buys 3 litres a week at each of the three prices. Calculate the new market demand at Rs 220 and state what happens to the market demand curve. [2]
3. (c) Explain one reason why the market demand curve slopes downwards. [2]

The supply of plastic chairs from factories near Gujranwala is Qs = −40 + 8P, where P is the price in hundreds of rupees (so P = 20 means Rs 2,000) and Q is in thousand chairs per month. A rise in electricity tariffs raises the cost of producing each chair by Rs 500 (5 in these units), shifting the supply curve upwards by this amount.

1. (a) Calculate the quantity supplied at a price of Rs 2,000 per chair (P = 20) before and after the increase in costs. [2]
2. (b) Explain two factors other than costs of production that could shift the supply curve for a manufactured good. [4]

Invented data. Over one year the average price of cooking oil in Pakistan rose by 35% while the quantity bought fell by 5%.

1. (a) Explain whether these data are consistent with a downward-sloping demand curve. [2]
2. (b) Assess whether the rise in price was more likely to result from a change in demand or a change in supply. [6]

Five fans, A to E, want one ticket each for a qawwali concert. The most each is willing to pay is: A Rs 900, B Rs 800, C Rs 700, D Rs 600, E Rs 500.

1. (a) Define consumer surplus. [2]
2. (b) The tickets are priced at Rs 650. Calculate the total consumer surplus. [2]
3. (c) The organiser cuts the price to Rs 550. Calculate the new total consumer surplus. [2]

1. (a) In a market, demand is P = 50 − 0.5Q and supply is P = 14 + 0.3Q, where P is in $ and Q in units. What is consumer surplus at equilibrium?A $506.25B $303.75C $1,012.50D $810.00 [1]

In the market for rooftop solar panels in Pakistan, demand is P = 120 − Q and supply is P = 20 + Q, where P is in Rs thousand per panel and Q is in thousand panels per month. Cheaper imported panels then change supply to P = Q.

1. (a) Calculate the consumer surplus and producer surplus before the change in supply. [2]
2. (b) Calculate the new consumer surplus and the change in consumer surplus. [2]
3. (c) In this example producer surplus also rises. Explain why an increase in supply does not always raise producer surplus. [3]

1. (a) Assess whether an increase in demand for a product always benefits both consumers and producers. Use the concepts of consumer surplus and producer surplus in your answer. [12]

1. (a) A supply curve is a straight line that passes through the origin. What is its price elasticity of supply?A 0 at every priceB equal to 1 at every priceC greater than 1 at every priceD different at every point on the curve [1]

The wholesale price of chicken in Lahore rises from Rs 600 to Rs 690 per kg. Over the next fortnight the quantity supplied rises from 20,000 kg to 21,500 kg per day.

1. (a) Calculate the price elasticity of supply of chicken. [2]
2. (b) Explain two reasons why the supply of chicken is price inelastic in the short run. [4]

1. (a) Define price elasticity of supply. [2]
2. (b) Assess whether the price elasticity of supply of manufactured goods is always greater than that of agricultural goods. [6]

1. (a) Explain the signalling, incentive and rationing functions of the price mechanism and consider how well these functions work in the market for rented housing in a fast-growing city such as Karachi. [8]