Exercise 1: Elasticity

Question 1
Table below shows hypothetical demand and supply schedule of durian in the market
Price/kg (RM) Quantity demanded (kg) Quantity supplied (kg)
45 6 12
40 7 10
35 8 8
30 9 6
25 10 4
20 11 2

a) Calculate the price elasticity of supply for durian if the price increase from RM25 to
RM40.
b) Base on the answer in a), state the degree of elasticity of supply.
c) The quantity demanded for durian decrease from 50 units to 29 units as the income
increases from RM3,000 to RM4,000. Calculate the income elasticity if demand for
durian.

Question 2
The following table shows the relationship between good X, good Y and consumer’s income.
PX QX QX QY Income
(RM) (unit demanded) (unit supplied) (unit demanded) (RM/month)
180 24 75 50 2,500
150 28 64 45 2,000
120 32 42 40 1,500
90 36 31 35 1,000
60 40 25 30 500

a) Calculate the price elasticity of demand for good X when its price increase from RM120
to RM150. Is the demand for good X is elastic or inelastic?
b) Calculate the cross elasticity of demand for good Y when the price of good X rises from
RM90 to RM150. Determine the relationship between good X and good Y.
c) Calculate the price elasticity of supply for good X when its price decrease from RM180
to RM120. Is the supply elastic or inelastic?
d) Calculate the income elasticity of demand for good X and Y when consumer’s income
increases from RM2,000 to RM2,500.
e) By using a suitable diagram, differentiate between inelastic supply and elastic supply.
Question 3
Table below shows the relationship between price of good X and quantity demanded for good
A, B and C.
PX QA QB QC
2 18 30 25
4 16 32 20
6 14 34 15
8 12 36 10
10 10 38 5

a) Define cross elasticity of demand.

b) If the price of good X increases from RM4 to RM10, calculate the cross elasticity of
demand for good A and good B.
c) Determine the relationship between
i) good A and X
ii) good B and X
d) When the income of household increases from RM300 to RM500, the demand for good
C decrease from 20 to 10 units. Calculate the income elasticity of demand for good C
and classify good C.

Question 4
A local firm produces three types of pizza for delivery to homes in the area. The owners have
conducted a research to discover the elasticity for each of the three pizzas. The schedules
are shown below (quantities per week).
PA QA (dd) QB (dd) QC (ss) PC
12 1,000 200 300 3
11 1,040 200 400 4
10 1,080 600 500 5
9 1,120 1,000 600 6
8 1,160 1,400 700 7
7 1,200 1,800 800 8
6 1,240 2,200 900 9
5 1,280 2,600 1,000 10
a) Calculate the cross elasticity of demand for pizza B when the price of pizza A increases
from RM7 to RM11.
b) Calculate the price elasticity of demand for pizza A if the price of pizza A increases from
RM5 to RM9.
c) Calculate the price elasticity of supply for pizza C if the price of pizza C decreases from
RM RM8 to RM5.
d) State two (2) determinants of price elasticity of supply.