Latest Activity In Study Groups

Join Your Study Groups

VU Past Papers, MCQs and More

We non-commercial site working hard since 2009 to facilitate learning Read More. We can't keep up without your support. Donate.

ECO401 GDB Spring 2021 Solution / Discussion Last Date: 03-06-2021

ECO401 GDB Spring 2021 Solution / Discussion Last Date: 03-06-2021

ECO401 GDB Question

Total Marks 5
Starting Date Friday, May 28, 2021
Closing Date Thursday, June 03, 2021
Status Open
Question Title Consumer Behavior: Consumption side analysis
Question Description

In year 2020, Pakistan faced the deadliest of the natural calamities in form of locust attack. Due to this the agriculture sector faced a loss of almost 353 billion rupees. Both the winter and summer crops were damaged partially, and after many years the Government of Pakistan decided to import the food items, to maintain the market price. In this background let’s assume, two groups, A and B are living in the country, with certain rational behavior towards the commodity prices of essential food items like wheat. Both groups have different opinion about wheat. People from group A consider wheat as a staple food, while people from group B consider it as a normal good. During the last month due to the fall in the commodity prices, it was observed, that people from group A, decreased their demand for wheat, where as people from group B increased their demand for wheat.

Requirement:

Which type of product is wheat for people from group A and people from group B?

What will be the income effect for the people from group A?

Views: 581

Replies to This Discussion

ECO401 GDB Question

Total Marks 5
Starting Date Friday, May 28, 2021
Closing Date Thursday, June 03, 2021
Status Open
Question Title Consumer Behavior: Consumption side analysis
Question Description

In year 2020, Pakistan faced the deadliest of the natural calamities in form of locust attack. Due to this the agriculture sector faced a loss of almost 353 billion rupees. Both the winter and summer crops were damaged partially, and after many years the Government of Pakistan decided to import the food items, to maintain the market price. In this background let’s assume, two groups, A and B are living in the country, with certain rational behavior towards the commodity prices of essential food items like wheat. Both groups have different opinion about wheat. People from group A consider wheat as a staple food, while people from group B consider it as a normal good. During the last month due to the fall in the commodity prices, it was observed, that people from group A, decreased their demand for wheat, where as people from group B increased their demand for wheat.

Requirement:

Which type of product is wheat for people from group A and people from group B?

What will be the income effect for the people from group A?

solution???

 Requirement#1:

Which type of product is wheat for people from group A and people from group B?

Solution:

  1. Wheat is a Giffen good for people from group A because a Giffen good is a low income, non-luxury product for which demand increases as the price increases and vice versa. A Giffen good has an upward-sloping demand curve which is contrary to the fundamental laws of demand which are based on a downward sloping demand curve. Demand for Giffen goods is heavily influenced by a lack of close substitutes and income pressures.

          

                                                            Figure 1(wheat is a giffen good for group A)

   

Above figure shows that as the price for wheat increases demand for wheat decreases and whenever the price for wheat decreases, its demand decreases also because it is human mentality that higher cost products are better. Decrease in price will definitely decrease the demand for wheat. Demand decreases, price decreases, quantity decreases.

  1. Wheat is a Substitute/normal good for people from group B because a decrease in the price for wheat will decrease the demand for its substitute; hence demand for wheat will increase. An inverse relationship is represented by a downward sloping line from left to right.

 

                                             

 

Above diagram shows downward sloping demand curve due to the presence of substitutes of wheat. Hence, when price for wheat decreases its demand increases and vice versa.

Requirement#2:

What will be the income effect for people from group A?

Solution:

  • In the case of a Giffen good; the positive income effect is stronger than the negative substitution effect so that the consumer buys less of wheat when its price falls.
  • In other words, Giffen goods or inferior goods are those goods for which demand declines as consumer real income (nominal income/price) rise. Hence; demand falls when the price decreases. So income increases and group A do not take any good who have not beneficial for them because they are very caring for health.

ECO401 GDB Spring 2021 Solution

ECO401-GDB-Solution-Spring%202021.pdf

Stay touched with this discussion, Solution idea will be uploaded as soon as possible in replies here before the due date.

 

Eco401 gdb 1 solution spring 2021

ECO401 GDB 1 Solution Spring 2021 || Economics || 100% Correct Solution

RSS

Looking For Something? Search Below

VIP Member Badge & Others

How to Get This Badge at Your Profile DP

------------------------------------

Management: Admins ::: Moderators

Other Awards Badges List Moderators Group

© 2021   Created by + M.Tariq Malik.   Powered by

Promote Us  |  Report an Issue  |  Privacy Policy  |  Terms of Service