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Micro Economics Question

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Micro Economics
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Saudi electronic university
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College of Administrative and Financial Sciences
Assignment 2
Release Date: 31
st
October 2021- Deadline: 13
th
November, 2021 @23:59pm
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/ 05
Level of Marks: High/Middle/Low
PLEASE READ THEM CAREFULLY
This assignment is an individual assignment.
Due date for Assignment 2 is 13/11/2021).
The Assignment must be submitted only in WORD format via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented. This also includes filling
your information on the cover page.
Students must mention question number clearly in their answer.
Late submitted assignments will NOT be entertained.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Course Name: MICROECONOMICS
Student’s Name:
Course Code: ECON101
Student’s ID Number:
Semester: 1
st
CRN:
Academic Year: 1442-1443 H

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Assignment 2 Maximum Marks-05
Question 1
a. Explain the concept of Equilibrium Price in a perfectly Competitive Market and how it is
determined? [2 Marks]
A perfectly competitive market is a theoretical extreme that serves as an efficiency benchmark.
Its market characteristics are that there is a large number of sellers and buyer that have perfect
information of market conditions and of the price charged. The products are all identical and
are all considered as perfect substitute to each other in the eyes of a consumer. Furthermore,
there exist no barriers of entry for new firms entering the market leading to no single firm
having an influence on the market price. In a perfectly competitive market, firms are price
takers which means that the equilibrium price is determined only by market demand and
product output.
b. Calculate the percentage change in equilibrium price if percentage change in quantity
demanded is 25%. Price Elasticity of Demand is 1.35 and Price Elasticity of Supply is
1.15. [1 Mark]
The Price Elasticity of demand is as follows:
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
= 𝑃𝑒𝑑
Therefore, replace into the formula where x represents the % change in price.
0.25
𝑥
= 1.35
Now solve for x
0.25
1.35
= 0.185
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 = 18.5%
Because of the perfectly competitive market, firms as price takers must accept the new equilibrium price
dictated by demand. Therefore, the equilibrium price will increase by 18.5%.

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College of Administrative and Financial Sciences Assignment 2 Release Date: 31st October 2021- Deadline: 13th November, 2021 @23:59pm Course Name: MICROECONOMICS Student’s Name: Course Code: ECON101 Student’s ID Number: Semester: 1st CRN: Academic Year: 1442-1443 H For Instructor’s Use only Instructor’s Name: Students’ Grade: Marks Obtained/ 05 Level of Marks: High/Middle/Low PLEASE READ THEM CAREFULLY ❖ This assignment is an individual assignment. ❖ Due date for Assignment 2 is 13/11/2021). ❖ The Assignment must be submitted only in WORD format via allocated folder. ❖ Assignments submitted through email will not be accepted. ❖ Students are advised to make their work clear and well presented. This also includes filling your information on the cover page. ❖ Students must mention question number clearly in their answer. ❖ Late submitted assignments will NO ...
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