BBBE 1033 ECONOMICS

MICROECONOMICS

TUTORIAL 4

1. May 2016/17

Proton decreased the price of it’s most popular car model from RM50,000 to RM40,000.
After the price decrease, it was reported that the number of units sold increased from 20,000
units to 30,000 units.

(i) Calculate the price elasticity of demand of the car. (4 marks)

(ii) Interpret the answer in part (i). (2 marks)

(iii) Examine the decision to decrease the price of the cars in terms of its effect on total
revenue and profits, assuming costs are unchanged. (3 marks)

2. September 2016/17

A bus company increased the bus fare from RM1.50 to RM2.50. After the fare increased, it
was reported that the number of passengers taking their buses declined from 100 million to 96
million.

(i) Calculate the bus fare price elasticity of demand. (4 marks)

(ii) Interpret the answer in part (i). (2 marks)

(iii) Examine the decision to increase the price of bus fare in terms of its effect on total
revenue and profits, assuming costs are unchanged. (3 marks)

3. April 2015/16

Recently, the canteen in ABC University increased the price of ‘mixed rice’ from RM 2.50 to
RM 3.50 per plate. As a result, the number of plates sold decreased from 6,000 to 5,000 plates
daily.

(i) Calculate the price elasticity of demand for mixed rice. (4 marks)

(ii) Based on the answer in (i), interpret the answer. (2 marks)

(iii) Examine the decision to increase the price of ‘mixed rice’ in terms of its effect on
total revenue and profits, assuming costs are unchanged. (3 marks)

4. August 2014/15

Suppose Angel Cake Shop increases the price of sponge cakes from RM10 to RM12.
This causes the quantity demanded to fall from 580 units to 500 units monthly.

(i) Using the midpoint approach, calculate the price elasticity of demand for
sponge cakes. (3 marks)
 (ii) Based on the answer in (i), interpret the coefficient of price elasticity of demand.
(2 marks)

(iii) Examine the decision to increase the price of the sponge cakes in terms of its effect
on total revenue and profits, assuming costs are unchanged. (3 marks)

5. Assume that the quantity demanded of good Z rises from 100 units to 130 units as the price of
product X falls from RM3 to RM2.

i. Calculate the coefficient of cross elasticity demand. (4 marks)

ii. Determine the relationship between goods Z and X. (3 marks)

6. Suppose that when Keith’s income increases from RM28,000 to RM30,000 per year, his
purchases of good A increase from 4 units to 5 units.

i. Calculate the coefficient of income elasticity of demand. (4

marks)

ii. Interpret the value of the coefficient above. (3 marks)

7. Suppose that when Mary’s income increases from RM56,000 to RM60,000 per year, her
purchase of good B decreased from 10 units to 5 units.

i. Calculate the coefficient of income elasticity of demand.

(4 marks)

ii. Interpret the value of the coefficient above. (3 marks)