SEMESTER SPRING 2014
Microeconomics (ECO402)
Assignment No. 01
Due Date: 14th May, 2014 Marks: 20
Assignment:The Case:
Pakistan is a large potato producing country. Over the years, potato has become an important crop for
both farmers and consumers in Pakistan. It is the fourth most important crop by volume of production.
Potatoes were being sold at Rs.30 per kilogram in the vegetables market a few months ago. The
quantity demanded and quantity supplied for potatoes were:
Qd = 1000 – 2P
Qs = 850 + 3P
The price has hiked by Rs.45 per kilogram in past three weeks and they are being sold at Rs.60 per
kilogram these days. The main reason behind the high price of potatoes is that the profiteering mafia
has hoarded huge quantity of this important vegetable. Their aim is to attain higher profits by selling
them at higher prices in the upcoming month of Ramazan. It has been reported that hoarders have
stored them in different godowns at Bhara Kahu, Chak Shahzad, Pirwadhai, Golra, Ganjmandi, Sihala,
Khanna Dak and Dhoke Ratta. Government has taken immediate action against hoarders, and finance
minister, Ishaq Dar, has given a 72-hours deadline to dealers to bring down the price of potatoes to
Rs.30 per kilogram in retail markets. The potato farmers have denied any involvement in hoarding and
claimed that the rise in prices of potatoes is due to increased prices of inputs. Government’s ultimatum
to reduce the price of potatoes in the markets has fallen on deaf ears as the traders are still selling
potatoes at high prices in retail markets.
Requirements:
Read the above scenario carefully and answer the following questions:
A. Find the equilibrium price and quantity for potatoes.
B. If P = Rs.60 then how much amount of shortage or surplus would occur?
C. How would the increased prices of inputs have affected the market of potatoes? Illustrate
graphically.
D. If the potato farmers’ claim regarding rise in prices is justified, then what should be the
possible strategy by the government? Discuss.
Marks = 5+5+5+5
Note:
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Deadline:
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Solution guidelines:
Every student will work individually and has to write in the form of an analytical
assignment.
Give the answer according to question.
For acquiring the relevant knowledge don’t rely only on handouts but watch the
video lectures, use recommended book and other reference books also.
Calculate to the point where calculation is being required. NO need to write
irrelevant material or extra interpretation.
Draw diagrams by yourself where required. Do NOT copy from any source. NO
need to write irrelevant material.
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The file you uploaded does not open or is corrupt
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