Indian Institute of Technology Kanpur

Department of Humanities and Social Sciences

ECO101A Introduction to Economics (2014-15-II)
Instructor: Dr. P. Kulshreshtha
PRACTICE PROBLEM SET # 3
Note:

There are 4 questions in this problem set, to be discussed in the tutorial class.
As far as possible, complete answers should be given.
Quality of reasoning provided is very important.
Make all necessary mathematical derivations to support your reasoning.
Draw graphs, if necessary.
Show all of your steps and work (including calculations) clearly.

1. Suppose that the Wonderland economy has the following statistics regarding its
population, workforce and employment: (i) Population = 150 million, (ii) Workforce
Participation Rate = 60 percent, (iii) Employment = 80 million. What is the rate of
unemployment in Wonderland?
2. The demand function for Steel in Kryptonia is given by: QD = 5000 1000PS + 2I + 100PA
where QD = Quantity demanded of Steel in Kryptonia (in tons per year), PS = Average
annual price of Steel in Kryptonia (Rs. per ton), I = Annual Income per capita in Rs. (=
NI/Population) and PA = Average annual price of Aluminum in Kryptonia (Rs. per ton).
(a)

Suppose that I = 20000 and PA = 30. If PS = 40, what is the quantity demanded of
Steel in Kryptonia?

(b)

If PA decreases by 5, how much should PS change to keep the quantity demanded

of Steel in Kryptonia unchanged?

(c)

In part (a) above: (i) What is the demand equation for Steel in Kryptonia?
(ii) What is the equation of the demand curve for Steel in Kryptonia?

(d)

In part (b) above: (i) What is the demand equation for Steel in Kryptonia?
(ii) What is the equation of the demand curve for Steel in Kryptonia?

(e)

Draw the demand curves for Steel in Kryptonia in parts (c) and (d) above, in the
same graph. Label the graph appropriately. Also, indicate the outcomes of parts
(a) and (b) above on this graph.

3. Amar (A), Akbar (B) and Anthony (C) exhibit the following demand relationships for
apples:
QA = 75 0.3P

P = 150 (5/3)QB

QC = 85 0.35P

where QA, QB and QC are the quantities of apples demanded per month by Amar,
Akbar and Anthony respectively, and P is the average monthly price of apples.
(a)

Graph the individual demand curves of Amar, Akbar and Anthony (in separate
diagrams). What is the equation of each demand curve? Discuss.

(b)

Derive the equation(s) for the market demand curve for apples, assuming the
population consists of only Amar, Akbar and Anthony.

(c)

Based on the results obtained in part (b) above, graph the market demand curve for
apples.
(P. T. O.)
1

4. Critically evaluate the following statements and explain why or in what way each
statement is true, false or uncertain.
(a)

A rise in the price of diesel will cause a decrease in the demand for diesel.

(b)

A decrease in the costs of production in an industry is likely to cause an increase in

the demand for the product.

ENJOY!