The Case:
Pakistan is among the major producers of sugar in the world. Let’s suppose that the
demand and supply functions of sugar industry of Pakistan are:
Qd = 5000 –2P
Qs = 200 + 4P
Over the last few years the country has experienced the worst sugar crisis. As a
result, the price of sugar has remained at very high level. It has been observed that in
winter season, demand for sugar boosts up due to higher demand for tea. Different
measures have been taken by the government to control the price rise to facilitate the
general public. -
Requirements:
i. Find out the price elasticity of demand and price elasticity of supply of sugar
when the industry is in equilibrium. (Marks 4+4)
ii. Since the demand for sugar is price inelastic and supply for sugar is relatively
more price elastic, does an increase in demand for sugar affect quantity more
or price more? Illustrate your answer graphically. (Marks 4)
iii. Calculate shortages or surpluses that occur in sugar industry when
government controls high sugar prices by setting a price limit equal to Rs.600
per bag. (Marks 3)
Microeconomics (ECO402) Assignment today is last date
Moderator: abdulsaboor