Tutorial Elasticity

Exercise: Elasticity 

1.                  The following is part of the demand schedule for commodity A.

Price (RM)	Quantity demanded of goods A
8	100
7	150
6	300

a.                  Define price elasticity of demand.

b.                  Calculate the price elasticity of demand for goods A if;

                                                        i.            Price falls from RM8 to RM7

                                                      ii.            Price falls from RM7 to RM6

                                                    iii.            Price increases from RM6 to RM7

                                                     iv.            Price increases from RM7 to RM8

c.                   Draw appropriate diagrams and explain the following value of elasticity of demand.

                                                        i.            Perfectly inelastic demand

                                                      ii.            Perfectly elastic demand

                                                    iii.            Unitary elastic demand

2.                  The following table shows the quantity demanded for 2 goods, X and Y at various levels of consumer’s income.

Income (RM)	Quantity Demanded Goods A	Quantity Demanded Goods B
10 000	4500	1950
11 000	4750	1500
12 000	5020	1400
13 000	5480	900

a.                  What is the meaning of income elasticity of demand?

b.                  Calculate the income elasticity of demand for goods A and B if consumer’s income increases from RM10000 to RM12000.

c.                   Interpret the value of elasticity in question (b).