1) Honda Motors, Inc.

measured price elasticity of demand

for one of their car models to be fairly inelastic, (-0.30);
hence suggested price increase of 20 percent. In this case,
work out the revenue effect if car price is raised from P1.2
M to P1.4 M. Should the management accept this
suggestion? Comment.

PED = (-0.30)

Price = 1.2 Million pesos to 1.4 million pesos

(-0.30

2) Last day the price of a piece of cheese hamburger was

P50, and May was willing to buy 10 pieces. Today, the
price has gone up to P65 each and May is now willing to
buy 8 pieces. Is May’s demand for cheese hamburger
elastic or inelastic? What is May’s elasticity of demand?

PED = Change of Q/Change of P

PED = (Q2-Q1)/Q1 / (P2-P1)/P1

PED = (8-10)/10 / (65-50)/50

PED = -2/10 / 15/50

PED = -0.2/0.30

PED = -0.667 inelastic

3) If May’s elasticity of demand for cheese hamburger is
constantly 0.9, and he buys 10 pieces of cheese hamburger
when the price is P50 per cheese hamburger, how many
will she buy when the price is P65 per cheese hamburger?

0.9 = (Q2-10)/Q1 / (65-50)/P1

0.9 = (Q2-10)/10 / (65-50)/50

0.9 = (Q2-10)/10 / (15/50)

0.9 = (Q2-10)/10 / 0.3

0.9 (0.3) = (Q2-10)/10

0.27 = (Q2-10)/10

0.27(10) = Q2-10

2.7=Q2 – 10

Q2 – 10 = 2.7 Q2 -10 + 10 = 2.7 + 10

Q2 = 2.7 = 10 Q2 = 12.7

Q2 =12.7

270 = Q2 -600
Q2 = 600 -270
Q2 = 330

Q2 – 600 =270

Q2 = 270 + 600

Q2 = 870
4) May advertises to sell cookies for P200 a dozen, sells 30
and decides that she can charge more. She raises the price
to P300 a dozen and sells 40 dozens. What is the elasticity
of demand? Assuming that the elasticity of demand is
constant, how many would she sells if the price will be
P500 a dozen?

Q2 = 40 P2 = 300

Q1 = ? P1 = 200

PED = (Q2-Q1)/Q1 / (P2-P1)/P1

PED = (40-Q1)/Q1 / (300-200)/200

PED = (40-Q1)/Q1 / 100/200

PED = (40-Q1)/Q1 / 0.5