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# (ECO302) PRINCIPLES OF MICROECONOMICS ASSIGNMENT#1 Solution & Discussion DUE DATE: MAY 10, 2017

(ECO302) PRINCIPLES OF MICROECONOMICS ASSIGNMENT#1 Solution & Discussion  DUE DATE: MAY 10, 2017

The Case:
Cotton is the second important crop of our country after wheat, in terms of area and value
added. Cotton is known as the silver fiber of Pakistan. In Pakistan, cotton crop is
cultivated in the southern Punjab and Sindh. It brings cash returns to the farmers, supplies
raw materials to the textile industry and provides employment in both the rural and the
urban areas. According to the estimates, Pakistan cotton production for 2016/17 is
forecast to rebound to 7.7 million 480-pound bales, an increase of 10 percent from last
year. Suppose the quantity demanded of cotton at different prices is as follows:

 Price per bushel(Rupees) Quantity demanded of cotton(Bushels) 2,000 6,000 3,000 5,000 4,000 4200 5,000 3500

Requirements:
A. From the data given above, draw demand curve of cotton.
B. Calculate price elasticity of demand for cotton when price is between Rs. 3,000
and Rs. 4,000 by using arc elasticity method and interpret your result whether
demand is elastic or inelastic.
C. Based on the value of elasticity calculated above, what would be the impact of
bumper crop on farmers’ incomes?

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