Economics: Supply and Demand and Cross Elasticity

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 4 (987 words) Published: August 26, 2013
FOUNDATION IN BUSINESS
BUS0615/PRINCIPLES OF ECONOMICS

TUTORIAL 4
Reading: Chapter 4 of the textbook.

SECTION A

1.The price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded.
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2.Demand is said to be inelastic when a reduction in price results in a decrease in total revenue.
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3.When the price of coffee increases 8%, quantity demanded decreases 5%. The elasticity of coffee must be inelastic. (PERCENTAGE OF PRICE IS GREATER THAN THE PERCENTAGE OF QUANTITY BY 1/1/2)
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4.The more substitutes there are for the product the more price elastic the demand for the product is.
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5.A vertical demand curve may be described as perfectly price inelastic.
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6.If the elasticity coefficient of demand for coconuts is 0.40, then a 20% fall in price will result in an 8% fall in quantity demanded. (QUANTITY DEMANDED INCREASE BY 8%)
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7. If the quantity demand of tea decreases by 2% when the price of coffee decreases by 8%, the cross elasticity of demand between tea and coffee is 0.25.
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8. If the cross elasticity of demand between fish and chicken is 2, then a 2% increase in the price of fish will result in a 4% decrease in the quantity of chicken demanded. (QUANTITY OF THE CHICKEN INCREASES CAUSE IT ACTS AS A SUBSTITUTE GOODS)

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9.If bus travel is an inferior good, then its income elasticity of demand will be negative.
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10.When income changes, the quantity demanded for a commodity remains the same, the income elasticity of demand for the good is negative one.

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11.The cross elasticity of demand for product X with respect to the price of product Y is 1.00. It can be concluded that X and Y are complementary products.
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12.A positive income elasticity of demand coefficient indicates that a product is an inferior good.
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13.A vertical supply curve may be described as perfectly price inelastic.
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14.A supply curve that has a...
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