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# ECO401 Assignment No 1, Fall 2014,Solutions and Discussions Due Date: Nov-27, 2014

ECO401 Assignment No 1, Fall 2014,Solutions and Discussions Due Date: Nov-27, 2014

Important announcement,  Assignment # 01  ECONOMICS (ECO401)

Dear Students!

This is to inform that Assignment No. 1 will be opened on November 20, 2014 and due date of assignment submission will be November 27, 2014.

A 24 hours extra/grace period after the due date is usually available to overcome uploading difficulties which may be faced by the students on last date.  This extra time should only be used to meet the emergencies; and above mentioned due date should always be treated as final to avoid any inconvenience.

Assignment File will be attached Later !

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Solved assigment

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i think part b  is incorrect

i think in part b ye formula

[(Q2-Q1)/Q1]  ÷   [(P2-P1)/P1] use ho ga, what do u think guys...????

q 2 ghlt hai

mohtram apka solution galat hai last part price elasticity wala

your all solutions are not relevant to their questions except Q1/part(a).

!!!! WRONG SOLUTION FILE !!!!!

I don't understand what "Discuss the variation in elasticity" means. Will this formula be used for Q2 part b? (Q1-Q2)/Q1+Q2) / (P1-P2)/(P1+P2) (The formula is for variation in elasticity)

Any body know the assignment of Eco 401

SEMESTER FALL 2014

ECONOMICS (ECO401)

ASSIGNMENT NO. 01

The Case:

Airline industry is a large and growing industry. It accelerates economic growth, world

trade, international investment and tourism and is therefore, central to the globalization.

The airline industry is always dependent on prevailing market conditions. There are lots

of factors which affect the passenger’s demand for air line’s travel; increase in its prices

of tickets, oil price, and terrorist throughout the year. Furthermore, market competition

and other modes of traveling (substitutes) in market like train, car etc. also affect demand

of airline tickets. If the demand and supply equations for airline tickets are:

Qs= 200+800P

Qd=2000-400P

Requirement:

a) Find the market clearing quantity and price of airline tickets, also show the

equilibrium condition graphically.

Qs=200+800P

Qd=2000-400P

Market Equilibrium

Qs=Qd

200+800P=2000-400P

400P+800P=2000-200

1200P=1800

P=1800/1200

P=1.50

 Quantity Supply Quantity Demand Qs=200+800P Qs=200+800(1.5)   Qs=1400 Qd=2000-400P Qd=2000-400(1.5)   Qd=1400

Market clearing Price: 1.50

Market clearing quantity: 1400

b) Find out the price elasticity of demand and price elasticity of supply of airline

tickets at equilibrium price and quantity.

 P Qd Qs 1.00 1600 1000 1.25 1500 1200 1.5 1400 1400 1.75 1300 1600 2.00 1200 1800

c) What will be the effect on the equilibrium level of airline tickets if ticket prices

increases due to high fuel prices. Illustrate graphically

(Marks: 5+3+3)

Part B:

People travel through air lines for different purposes, like businessmen travel for

business purpose and tourists for entertainment. Elasticity of demand is different

for both types of travelers. Suppose that business travelers and tourists have the

following demand for airline tickets from Lahore to Karachi.

Requirements:

a) Find the elasticity of demand when price of airline’s tickets rises from \$150

to \$200 for business travelers and tourists.

Elastic Of Demand:

Ed=∆Qd/∆P×P/Qd

Ed=-400×1.5/1400

Ed=-0.42

Ed <1

Less Elastic

Elasticity Of Supply:

Es=∆Qs/∆P×P/Qs

Es=800×1.5/1400

Es=0.85

Es <1

Less Elastic

b) Discuss the variation in elasticity of demand results in part “a” for both types

of travelers.

Price Elasticity Of Demand for business travelers = PЄ d

PЄ d = Percentage change in Quantity Demanded /Percentage change in Price

Price Elasticity Of Demand = PЄ d = 2, 900 – 2, 800 / 150-200

Price Elasticity Of Demand = PЄ d = 100 / 50

Price Elasticity Of Demand = PЄ d = 2

Price Elasticity Of Demand for Tourists:

Price Elasticity Of Demand = PЄ d = 1, 800-1, 000 / 150-200

Price Elasticity Of Demand = PЄ d = 800 / 50

Price Elasticity Of Demand = PЄ d = 16

The values in Q2 part (a) are wrong, the values given are 150 and 200 and we only have to find the elasticity of demand. The answer belongs to Q1 part (b).

!!!! WRONG SOLUTION FILE !!!!

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