My Assignment Help

BAEC1203 Application of Microeconomics Principle in Given Questions Assessment Answer


Q1 : Ali is confused to spend the 300 OMR which he received as EID gift on purchasing the Camera or Mobile Phone. Which resource is highlighted as the scarce resource in this situation? How he will make the choice?  Discuss the role and importance of opportunity cost involved in his decision making process? (4 Marks)

II. Suppose you are manager in the Mazoon LLC Milk Company who need to take many managerial decisions. Explain in detail any THREE Microeconomic and Macroeconomic decisions you will take for the company benefit.       (6 Marks)

Q2: Why Economic system is important for any country?    (2 Marks)

II. Based on your understanding of economic system, find out which economic system shall be focusing on more creativity and innovation? Explain your answer by focusing on:

          a) Name of the country with type of the system and justification?    (4 Marks)

          b) Discuss any two problems for the chosen economic system.        (4 Marks)

Q3: When global demand dries up, not only food but also fresh flowers are thrown away. Many events were canceled, and the growers had to eat the manure of the flowers. The Netherlands accounts for about 80% of world flower production. Please answer the following questions:

 I. Is this change being increase in the demand or decrease in the demand? Discuss the FOUR factors which affects the change in quantity demanded in detail with the help of the examples of your own.   (4 Marks)

II. Is this change being increase in the supply or decrease in the supply? Discuss the FOUR factors which affects the change in quantity supplied in detail with the help of the examples of your own.   (4 Marks)

III. Due to COVID-19 prices of medical supplies are increased and demand is also increased. Is this being correct according to the Law of Demand? Yes, or No, justify your answer with appropriately explaining any two concepts.   (2 Marks)

Q4: Every citizen can have minimum standard of living with their monthly earnings. It is important to ensure such wage earnings for the benefit of the society. Oman Government introduced minimum wages as OMR 400 to be sanctioned for every employee in the job. It is the wage level fixed as per the situations of demand and supply. 

Answer the questions:

Q1. Do you think it is appropriate or not to decide OMR 400 as minimum wage? Give your own ideas to support your answer. [1+3=4 Marks]                                                             

Q2. Do you suggest the government to increase the minimum wages to OMR 450? What affects the economy would face, if government increases the minimum wages?   [2+4= 6 Marks] 

Q5: Lulu hyper market reduces the price of oranges from OMR 5 per kg to OMR 3. Hence, the weekly sales increase from 8,000 to 10,000 units.

Answer the questions:

Q1. Calculate the price elasticity of demand with clear steps of working.   [4 Marks]

Q2. The observed value belongs to which type of price elasticity of demand. [1 Mark] 

Q3. Describe in your own idea the demand situation and the shape of its curve in relation to the market changes.



Money available to Ali that is 300OMR, is a scarce resource in the example. He can make a choice by weighing pros and cons of either choice. Choice must be made between the alternative uses according to the priorities and what is more needed. Whatever is needed more and is high on priority, Ali must buy that product with limited 300OMR.


  1. Microeconomics Decisions: The word ‘micro’ has been originated from Greek word ‘MIKROS’ which means small.  Thus in microeconomics, the unit of study is an individual, firm, or household. 
  2. Macroeconomics Decisions: The word ‘macro’ has been originated from Greek word ‘MAKROS’ which means large. Thus, Macroeconomics can be defined as that branch of economic analysis which studies the behavior of not one particular unit, but of all the units combined together. Macroeconomics is a study of aggregates.
  3. For company’s benefit, a manager will decide:
    1. What to produce, 
    2. How to produce, 
    3. For whom to produce
    4. What price to charge.


Economic System refers to the mode of production and the distribution of goods and services within which economic activity takes place. For example, capitalist, socialist, mixed economy etc. Each system has advantages and disadvantages. 


In a capitalist economy factors of production are privately owned by the institutions and citizens. There is no interference by the government. It’s a free economy.  There is a freedom of choice for consumers, business and resource suppliers. Consumers may purchase whatever they want depends on their income. Businesses are free to purchase and utilize resources to produce whatever they want to produce and sell in to the market. 

The main motive behind the working of the capitalist system is to get profit. The decisions of businessmen, farmers, producers are based on profit which influences all economic activities.

In such a system, entrepreneurs feel free to take risks and introduce more technological innovations that quickly cause structural changes and high rates of economic growth and labor productivity. Hence, it will have maximum focus on creativity and innovation.

An example of a capitalist economy is United States which has a free economy with negligible interference from the government. However, in such an economy:

  • It creates economic inequality among people of the society because some individuals concentrate all the resources in their control. Thus rich becomes richer and poor becomes poorer. 
  • Some individuals who have more power can construct rules that limit diversity and competition.


The change is decrease in demand. Factors that affect quantity demanded are:

  1. Taste and Preference of consumer: For example, if the consumer starts preferring Brand B now instead of Brand A earlier, the demand for Brand A will decrease.
  2. Income of the People: Income directly translates to purchasing power and hence, lower income indicates lower demand and vice versa. For example, Lily was buying 2kg beef per week when her income was $1000 but now she buys 3Kg beef per week because she has been promoted and her income is now $1500.
  3. Price of Substitutes: If price of substitute reduces, the consumer will choose that product instead and this will lead to decrease in demand for subject product. For example, Brand A and Brand B cookies sell for $5/packet and these are perfect substitutes. Brand A reduces price to $3/packet. The consumers of Brand B will also switch to cheaper substitute Brand A. This will cause decrease in demand of Brand B.
  4. Change in Price: As per law of demand, higher price means lower demand and vice versa. For example, Abe was buying 2kg rice per week when price was $10/kg but now price has increased to $15/kg which led to decrease in quantity demanded to 1kg/week.


The change is decrease in supply. Factors that affect quantity supplied are:

  1. Change in Price: As per law of supply, higher price means higher supply and vice versa. For example, the price of rice has increased from $10/kg to $15/kg which will lead to increase in supply of rice.
  2. Price of Other Goods: If price of other goods increase, the supplier may switch resources to that good instead of current good being supplied. For example, a farmer is producing wheat which is supplied at $5/kg. But the price of rice has increased from $10/kg to $15/kg. This may cause the farmer to produce and supply rice instead of wheat.
  3. Cost of Factors of Production: Producing a good requires many resources, such as, labour, raw material etc. If their cost increases, it becomes expensive and less profitable for the supplier. This may lead to reduced supply of that product. Correspondingly, if cost of production declines, it may increase the supply of the good.
  4. Taxes: If the government increases taxes on the good produced, the cost increases leading to reduced profitability. This may cause the supply to reduce.


Due to COVID situation, there is an emergency and medical supplies have become a necessity. Hence, this is an exception to law of demand where:

  • Necessity goods: In the case of necessity goods, the law of demand fails. This is because even the price of these goods increases, the people have to demand them. For example, due to COVID, even if the price of medical supplies rises, the people have to buy to use.
  • Emergency: In the case of emergency, the people buy more even if the price is high due to the fear that whether goods will be available for next second or not. This is true in today’s situation where contactless thermometers, masks, sanitizers, ventilators etc. are required. The prices have shot up but still demand is there due to emergency and fear.


An example of a price floor is the minimum wage. Minimum wage laws indicate the lowest wage a firm can legally pay to an employee. In the given case, the government of the sultanate of Oman stipulates that the minimum wage payable to an Omani should be R.O. 400. Minimum wage laws

It is also given that this wage level is fixed as per the situations of demand and supply. Hence, it will not result in unemployment as the minimum wage is equal to equilibrium level of wage as determined by forces of demand and supply.


If in the given case, the government of the sultanate of Oman stipulates that the minimum wage payable to an Omani should be R.O. 450, the minimum wage will be above the equilibrium level of wage as determined by forces of demand and supply. 

Hence, this will lead to labour surplus and unemployment as shown in following graph:labour surplus and unemployment

How the minimum wage affects the labour market is shown in Panel a.  and Panel b. below. Panel a shows a labour market in which the wage adjusts to balance labour supply and demand. The equilibrium wage is Owe. Panel b. shows the impact of a binding minimum wage. 

If the minimum wage is above the equilibrium level, the quantity of labour supplied exceeds (125) the quantity of labour demanded (75). The result is unemployment.(50)



Price of Orange53=(3-5)/5 = -0.4
Qty Demanded800010000= (10,000-8,000)/8000 = 0.25
 PED  = 0.25/-0.4 = -0.625

As seen price elasticity is calculated as %change in quantity demanded/ %change in price and comes to -0.625


The price elasticity of demand is almost always negative due to law of demand. The value of coefficient, that is, 0.625 is less than 1 indicating that the demand for oranges is relatively inelastic as the change in price leads to less than proportionate change in quantity demanded.


The demand is relatively inelastic with negative price elasticity of demand. Hence, the demand curve  will be a steep downward sloping curve

Customer Testimonials