- Case # 01:
- Pakistan is among the major producers of sugar in the world. Besides production, Sugar consumption in Pakistan is also growing with the expanding population. In the last 10 years, consumption grew at an average of 110 000 tones yearly, or over 4 percent a year. Let’s suppose that the quantity demanded of sugar in Pakistan is shown by the following equation: Q = 500 –2P
- 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.
- Calculate the price elasticity of demand of sugar if the price of sugar is Rs. 58 per kilogram.
- After calculation, interpret your result whether demand of sugar is elastic or inelastic.
Case # 02:
Ali is a rational consumer and strives to fulfill most of his wants with his limited means. Currently, he has 10 rupees and he wants to purchase two goods, Mangoes and apples with it. Let, the price of mango is Rs. 1 per unit whereas price of apple is Rs. 2 per unit. Table given below summarizes Ali’s preferences for mango and apple.
- Mango and apple will Ali purchase in maximizing his utility?
Prize Mango= 1Rs prize Apple =2Rs
|Unit of Mango
|M U of
- Calculate the total utility that Ali will derive at utility maximization level.
|Units of Mango And Apple||Total utility of
|TU=∑MU||Total utility of
|2||8||-2 (8-10)||20||-4 (20-24)|
|3||7||-1 (7-8)||18||-2 (18-20)|
|6||4||-1 (4-5)||6||-6 (6-12)|
- Suppose Ali now wants to purchase three goods i.e.; mango, apple and banana, show with the help of equation, when he will get maximum satisfaction
Suppose: Last Mange utility: 8Rs formula = Mux/px=MuY/Py
Last banana utility: 5Rs =5/1=5
Last Apple utility: 10Rs =10/2=5