Background:
Toyota is one of the world’s biggest manufacturers of motor vehicles. It has worldwide market spreading from Asia to North America, Europe and other parts of the world. Toyota has different designated models which are produced specifically for the country. Depending upon the market demand and supply conditions, Toyota keep on revising their prices.
The case:
Suppose demand and supply conditions of Toyota cars in year 2011 have been given below.

Month	Total Price	Total	Total
	charged In	Quantity	Quantity
	‘000000000	sold In ‘000	Demanded
			In ‘000
July	2.6	3.33	3.50
August	2.4	3.06	3.20
September	2.8	3.30	3.60
October	2.9	3.37	3.80
November	3.1	3.88	4.20
December	2.9	3.74	4.15

It has been observed that the sales of Indus Motor Company’s (IMC) Toyota cars– the highest selling cars in the country – decreased 24% in August 2012 to 2,800 units, from 3,060 units in August 2011. There are many reasons of declining trend in the sale of Toyota cars. One of the main reasons is that during the last six months almost 25,000 used vehicles have been imported, amounting to 25 per cent of the total market demand for automobiles in the country and causing an annual loss of sales revenue worth Rs.20 billion to the parts-manufacturing industry. Another reason is that the Indus Motors was short-sighted in making the necessary change to bring cars to match the Euro-II standards and thusly, had to increase the prices overnight when the deadline of July to swap to Euro-II standards had passed and companies hastily switched over to the new Euro standards.
Requirement:
Part A:
Keeping in view the demand supply conditions of Toyota cars given in the table:
a. Calculate the point elasticity of demand and supply of Toyota cars from August-July 2011.
b. Calculate the Arc elasticity of demand and supply of Toyota cars from December-July 2011. Marks :( 5+5)
Part B:
a. Why the sales revenue of Toyota cars has decreased in 2012? Elaborate your answer by keeping in view the calculated answers in part A.
b. What will be the effect on the equilibrium situation of Toyota cars demand curve as Toyota did not converted their cars on Euro-II standards? Illustrate graphically by taking supposed equilibrium condition of Toyota cars.
c. As an Economic advisor, if you suggest Pakistan’s department of transportation to impose costly regulation on manufacturers of imported in order to facilitate domestic infant industry. What will be the impact of costly regulation on the equilibrium situation of Toyota cars? Illustrate graphically.
Marks :( 4+3+3)
Solution:
Answer Part 1
A)    Calculate  point elasticity quantity supplied :
point elasticity quantity supplied
ϵ = ΔQ/ΔP x P/Q
ϵ= 0.27/0.2 x 5/ 6.63
ϵ= 1.35 x 0.75
ϵ= 1.01
point elasticity quantity demanded
ϵ=ΔQ/ΔP x P/Q
ϵ=0.3/0.2 x 5/ 6.7
ϵ=1.5 x 0.74
ϵ=1.11

B)    Calculate Arc elasticity:
ϵ= Q1 –Q2/ Q1+ Q2  % P1-P2/ P1+ P2

ϵ= 3.74-3.33/3.74+3.33 % 2.9-2.6/2.9+2.6
ϵ= 0.41/7.07 % 0.3 /5.5
ϵ= 0.41/7.07 x 5/0.3
ϵ= 2.05/2.12
ϵ= 0.96

Part 2;
A)    The sales revenue of Toyota cars has decreased in 2012 because of two reasons the very basic reason is that during the last six months almost 25000 used vehicles have been imported amounting to 25% of the total market demanded for automobiles
The second reason is that the Indus motor is shot sighted in making the necessary changes to bring car to match the EuroӀӀ standard.

ECO401 VU Quiz No 1 Fall 2012
Question # 1 of 15 ( Start time: 11:12:32 PM ) Total Marks: 1
The law of diminishing marginal utility indicates that the demand curve is:
Select correct option:
Vertical.
U shaped.
Upward sloping.
Downward sloping.
Question # 2 of 15 ( Start time: 11:13:37 PM ) Total Marks: 1
A normative economic statement:
Select correct option:
Is a statement of fact.
Is a hypothesis used to test economic theory.
Is a statement of what ought to be, not what is.
Is a statement of what will occur if certain assumptions are true.
Question # 3 of 15 ( Start time: 11:14:09 PM ) Total Marks: 1

ECO401 - Economics  Finalterm Subjective Paper July 2012

1.Discus the basic function of money.
2.The demand and supply for apple expressed as Qd = 120 – P, Qs = 5P
Calculate the equilibrium quantity of apples.
3.Why marginal cost curve considered as supply curve monopoly?
4.Identify the transaction that cause demand for dollars to increase from exchange market.
5.Identify the key economic variable for macroeconomic model?
6.What are the long term implications of exogenous growth theory?
7.Briefly discuss the all kind of taxes GOVT impulse.

ECO401-Economics-Finalterm-Subjective-Paper(Feb 2012)

1-Discuss the concept of accelerator in your own words.
2-Differentiate between international trade and international finance.
3-If MPC = 0.84 and tax rate = 0.27 then find out the value of tax-adjusted multiplier.
4-How can a current account, which is in deficit, be restored to balance under fixed exchange rate regimes?
5-State the law of diminishing marginal returns in terms of labor and land.
When does the law of diminishing marginal returns begin to operate? What is its cause? Why may it start only after some quantity of labor is employed?
6-Differentiate between transaction motive and precautionary motive of holding money.
7-From the given information, calculate the multiplier for each level of marginal propensity to save (MPS).
MPS
0
0.4
0.6
1
1.4

• Transactions theories of money demand.
• Difference between Residential investment & Inventory investment.
• Conclusion of Borrowing constraints.
• Borrowing constraints and tax.
• Fiscal policy under flexible exchange rat