Tutorial 2 - ANSWERS.docx

Calculate the cross elasticity of demand and state

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quantity demanded for Good A decreased to 75 units. Calculate the cross-elasticity of demand and state the relationship between Goods A and B. Answer List the details needed Qd A1 =300, Qd A2 =75 , P B1 =RM3.50, P B2 =RM5 75-300 x 3.50 = -1.75 300 5-3.50 -1.75 < 0, Good A and Good B are complements. An increase in the price of Good B decreases the quantity demanded for Good A Question 4 If the price for a chocolate bar decreases from RM4 to RM3, and the quantity supplied decreases from 8,500 to 6,000 units, what is the price elasticity of supply for the chocolate bar? Answer List the details needed Qsx 1 =8,500, Qsx 2 =6,000 , P x1 =RM4, P x2 =RM3 6,000-8,500 x 4 = 1.18 8,500 3-4 1.18 = Elastic supply. A decrease in price by 1% will lead to a decrease in quantity supplied for chocolate bar by 1.18%.
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Question 5 The table gives the demand and supply schedule for Good X Price (USD) Quantity Supplied Quantity Demanded 8 800 400 7 700 500 6 600 600 5 500 700 4 400 800 Calculate the: I. Price elasticity of demand when the price increases from USD4 to USD5. Answer List the details needed Qdx 1 =800, Qdx 2 =700 , Px 1 =RM4, Px 2 =RM5 700-800 x 4 = - 0.5 = 0.5 800 5-4 We use absolute value to exclude the negative sign. In this case 0.5<1, demand is less responsive to price change. As price increase by 1%, the quantity demanded for Good X will decrease by 0.5% and vice versa. II. Price elasticity of demand when the price decreases from USD8 to USD7. Answer List the details needed
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Qdx 1 =400, Qdx 2 =500 , Px 1 =RM8, Px 2 =RM7 500-400 x 8 = - 2 = 2 400 7-8 We use absolute value to exclude the negative sign. In this case 2>1, demand is very responsive to price change. As price decrease by 1%, the quantity demanded for Good X will increase by 2% and vice versa.
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