UNIVERSITY OF THE PHILIPPINES LOS BAÑOS

COLLEGE OF ECONOMICS AND MANAGEMENT

DEPARTMENT OF ECONOMICS

ECONOMICS 11: GENERAL ECONOMICS

V.I. Castillo

Activity 3
Concepts of Elasticities

Recit Section and Group Number: ECON 11 2R / Group 6

Score:
Date: February 12, 2020
Name: Erica I. Bue
Contributing Members (in alphabetical order)
1. Amadure, Cleo Margarette O.
2. Jores, Janelle Ann

Before you answer the following, make sure that you know the following concepts:
1. Elasticity
2. Supply vs. demand elasticity
3. Arc elasticity vs. point elasticity
4. Own-price vs. Cross-price vs. Income elasticities
5. Normal and luxury good vs. Normal and necessity good
6. Demand elasticity and changes in the total revenue
7. Supply vs. Demand ealsticity and the burden of tax

Question and correct answer Elaboration

For #s 1-6, refer to the graph below.

For #s 1-2, assume that the initial demand For #s 3-4, assume that the initial
for gasoline is at point O. market equilibrium is at point O.

1. Compute for the arc elasticity of Mathematical

demand from A to B using the Qd 2  Qd1 P2  P1
Ed  ÷
midpoint formula Qd1  Qd 2 P1  P2
 = 10  40 ÷ 40 - 20 E   1.8
40  10 20  40
2. True or False: The demand shown FALSE. It shows that the 1% decrease in price of gasoline
in the graph above is inelastic will result to 1.8% increase in the quantity demanded which
is elastic.
3. If the demand equation is Qd= 40- Mathematical Computation
0.5P, compute for the point
elasticity at point A. Q P 20 - 10 20 - 40
E ÷  ÷  1 ÷ -0.5 E   2
Q0 P0 10 40

4. If the demand equation is Qd= 40- Q P 30 - 40 40 - 20

0.5P, compute for the point E ÷  ÷ E   0.5
Q 0 P0 40 20
elasticity at point B.
5. True or False: Point A is more TRUE. Compared to Point B, it has a small amount of change
elastic than point B. for every 1% change in price than point A that has 2% thus it
is more elastic than Point B.

6. Assume that the graph above shows Mathematical Computation

an elastic demand. Given a price Point A Point B
decrease from point A to B, total TR= PxQ TR=PxQ
= 40x10 = 20x40
revenue will also decrease.
TR= 400 > TR= 800

From point A to B, the total revenue increases as the price

decreases thus it is not elastic.

7. If the own price elasticity of supply a. Completely-labeled graph

is 1.67 and -1.50 for the demand, (Using the demand and supply graph, show which is
consumer will have a bigger share steeper, demand or supply? Move the supply curve to
the left to show the effect of tax imposition)
on the burden of tax
Indicate the area of the tax shouldered by the consumer
Indicate also the area of the tax shouldered by thr producer.

b. Maximum of two sentence intuition/explanation/

interpretation
Explain the effects of the choices on the graph (e.g.
shifts the demand/supply or movement along the
demand/supply)

Key-takeaways

An expensive and a cheaper one tells us the degree of responsiveness we take to a price change of
the two commodities.

Bonus:
TRUE or FALSE. 1 pt each.
1.If the price of good Y increased from Php 5 to Php 10 and the quantity demanded decreased from 10 to 8, total
revenue did not decrease since the demand for good Y is inelastic. TRUE
(Clue: compute for the own price elasticity of demand and the total revenue)
2.Increase in prices increases the consumer surplus. FALSE