ECO 162: Microeconomics Elasticity

SAMPLE OF STRUCTURE QUESTION

The schedule below shows the relationship between the price of good X and the quantity
demanded for goods X and Y.

Price of Good X (RM) Quantity Demanded for Quantity Demanded for

Good X (kg) Good Y (kg)
5 160 100
10 140 120
15 120 140
20 100 160

a) Calculate the price elasticity of demand for good X if the price of good X falls from RM 10.00
to RM 5.00 per kg. State whether it is elastic or inelastic.
(2 marks)
P0=10, Q0=140
P1=5, Q1=160

ԐP = - ((QD1 – QD0)/QD0) X (P0 /P1-P0))

= - ((160 – 140)/140) X (10 /5-10))
= 0.29, Demand is inelastic.

b) Calculate the cross elasticity of demand of good Y when price of X increases from RM10.00
to RM 20.00. State whether good X and good Y are complements or substitutes.
(2 marks)
P0=10, Q0=120
P1=20, Q1=160

Ԑx = (Qx1 – Qx0)/Qx0) X (Py0 /Py1-Py0)

= (160 – 120)/120) X (10 /20-10)
= 0.33, Goods X and Goods Y are substitute goods.

c) Draw a diagram to show what will happen to the demand for good Y when price of good X
increases.
(2 marks)
When Px increases, Demand for good Y decreases. Therefore, demand curve for goods
Y shift to the left from D0 to D1.
P

D1 D0

Q1 Q0 Qtty

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ECO 162: Microeconomics Elasticity

d) When the income of consumer increases from RM 1000 to RM 1400, the demand for good
X increases from 40 to 80 units. Calculate the income elasticity of demand for good X and
identify the type of good X.
(2 marks)
Y0=1000, Q0=40
Y1=1400, Q1=80

ԐY = (QD1 – QD0)/QD0) X (PY0 /PY1-PY0)

= (80 – 40)/40) X (1000 /1400-1000)
= 2.5, Goods X is a luxury goods.

e) List two (2) factors that can influence the price elasticity of demand.
(2 marks)

i) Time Dimension
ii) Habit

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ECO 162: Microeconomics Elasticity

STRUCTURE QUESTIONS

ELASTICITY OF DEMAND

1) A 20 percent rise in the price of good S results in the following:

Good Percentage Change in Quantity Demanded

T Increase by 50%
U Decrease by 30%
V Remains the same

a) Calculate cross price elasticity of demand between good S and

i, good T

ii. good U

iii. good V

(3 marks)

b) Name the relationships between good S and each of the other goods (based on your
answers in a).
(3 marks)

c) What is the difference between an elastic demand and an inelastic demand.

(2 marks)

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ECO 162: Microeconomics Elasticity

2) The following table shows the quantity demanded for goods B, C and D with respect
to the price of good A.

Price of Good A (cent) Quantity of Good B Quantity of Good C Quantity of Good D

(kg) (kg) (kg)
40 2 5 5
30 3 3 5
20 4 2 5

a) State the formula for the price elasticity of demand and the formula for cross elasticity of
demand.
(2 marks)

b) Calculate the cross elasticity of demand for good 8. What is the relationship between good A
and good B?
(2 marks)

c) Calculate the cross elasticity of demand for good C. What is the relationship between good
A and good C?
(2 marks)

d) Calculate the cross elasticity of demand for good D. What is the relationship between good
A and good D?
(2 marks)

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ECO 162: Microeconomics Elasticity

3) The schedule below shows the relationship between the price of good X and the quantity
demanded for goods X and Y.

Price of Good X (RM) Quantity Demanded for Quantity Demanded for

Good X (kg) Good Y (kg)
5 160 100
10 140 120
15 120 140
20 100 160

f) Calculate the price elasticity of demand for good X if the price of good X falls from RM 10.00
to RM 5.00 per kg. State whether it is elastic or inelastic.
(2 marks)

g) Calculate the cross elasticity of demand of good Y when price of X increases from RM10.00
to RM 20.00. State whether good X and good Y are complements or substitutes.
(2 marks)

h) Draw a diagram to show what will happen to the demand for good Y when price of good X
increases.
(2 marks)

i) When the income of consumer increases from RM 1000 to RM 1400, the demand for good
X increases from 40 to 80 units. Calculate the income elasticity of demand for good X and
identify the type of good X.
(2 marks)

j) List two (2) factors that can influence the price elasticity of demand.
(2 marks)

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ECO 162: Microeconomics Elasticity

4) Based on the table below, answer the following questions.

Income (RM) Price of good A Quantity Demanded Quantity demanded
(RM) for good A (Unit) for good B (Unit)
1000 8.50 450 300
1100 7.00 475 370
1200 6.50. 502 480
1300 6.00 548 620

a) Calculate the income elasticity of demand for good B if the consumer's income increases
from RM1100 to RM1300. (2 marks)

b) What type of good is good B? Why? (2 marks)

c) If income is constant, calculate price elasticity of demand for good A if it's price falls from
RM8.50 to RM6.50. Give your interpretation. (3 marks)

d) Is the demand for good A elastic or inelastic? (1 mark)

e) List two (2) factors that influence elasticity of demand for good A. (2 marks)

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ECO 162: Microeconomics Elasticity

5) The following table shows the amount of good H and Z demanded by the citizens of a
particular country at different prices and consumer income levels.
Price of good Quantity demanded Quantity demanded Income of
H for good H for good Z consumers
(RM per unit) (unit) (Unit) (RM)
60,000 100,000 20,000 4,500
65,000 90,000 30,000 3,500
70,000 70,000 50,000 2,500
75,000 40,000 70,000 1,500
80,000 10,000 85,000 500

a) Calculate the price elasticity of demand for good H if the price of good H increases from
Rm70,000 to RM75,000. Is the demand elastic or inelastic?
(2 marks)

b) Calculate the cross elasticity of demand for good Z when the price of good H decrease from
RM80,000 to RM70,000. What is the relationship between the two goods?

(2 marks)

c) If the cosumer’s income level increases from RM3,500 to RM4,500, determine the income
elasticity of demand for

i. Good H

ii. Good Z

d) Based your answer in (i) and (ii), state the type of good

(4 marks)

e) State two factors that influence the price elasticity of demand for a good
(2 marks)

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ECO 162: Microeconomics Elasticity

6) Suppose that business travelers and vacationers have the following demand for airline
tickets from Kuala Lumpur to Langkawi.

Table 2: The demand for airline tickets from Kuala Lumpur to Langkawi

Price (RM) Qty. Demanded of tickets Qty. Demanded of tickets

(Business travelers) (Vacationers)
150 2,100 1000
200 2,000 800
250 1,900 550
300 1,800 400

a) As the price of tickets rises from RM200 to RM250, calculate the price elasticity of demand
for both business travelers and vacationers.
(4 marks)

b) Why might vacationers have a different elasticity from business travelers?

(3 marks)

c) Calculate the income elasticity of demand for vacationers if income rises from
RM10,000 to RM15,000. Interpret the elasticity coefficient.
(3 marks)

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ECO 162: Microeconomics Elasticity

7) The table below shows the quantity demanded for Good L and Good M. Based on the table
answer the questions below.

Price of Good M Qty. Demanded for Good L Qty. Demanded for Good M
(RM) (units) (units)
15 100 500
20 80 350
25 50 200
30 20 150

a) Define price elasticity of demand and calculate the price elasticity of demand for Good M if
the price increases from RM20 to RM25. (3 marks)

b) Calculate the cross elasticity of demand for Goods L if price of Good M decreases from
RM25 to RM20. Determine the relationship between the two goods. (2 marks)

c) Assume the income elasticity of demand for Good M is +3.0. What does it mean?
(1 mark)

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ECO 162: Microeconomics Elasticity

8) Analyze the table below and answer the following questions.

Price of good A (RM) Demand for good B (units) Demand for good C (units)

2.40 445 330

2.60 428 358

2.80 412 366

i) Calculate the cross elasticity of demand between good A and B, and between good A
and C if price of good A increases from RM 2.40 to RM 2.80.
(4 marks)

ii) What is the relationship between good A and B and between good A and good C?
(1 mark)

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ECO 162: Microeconomics Elasticity

9)Table below shows the price of Good S and quantity demanded for Good S and Good T in
Sun- City.

Price of Good S Quantity Demanded for Quantity Demanded for

(RM) Goods S Goods T

3 100 50

5 70 60

a) Calculate the price elasticity of demand for Good S when price falls from RM5 to RM3. Is
demand for Good S elastic or inelastic?

(3 marks)

b) Calculate the cross elasticity of demand for Good T when price of Good S increase from
RM3 to RM5.

(2 marks)

c) Based on answer in (b), what is the relationship between Good S and Good T?

(1 mark).

10) The table below shows the price of good A and demand for good B and good C.

Price of A (RM) Demand of good B Demand of good C (Units)

(units)

2.40 15 40

2.60 24 32

2.80 36 24

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ECO 162: Microeconomics Elasticity

Based on the table above, answer the following questions.

a) Calculate cross elasticity of demand between good A and good B and between good A
and good C, if price of good A increases from RM2.40 to RM2.80.

(3 marks)

b) What is the relationship between good A and good B, and between good A and good C.

(2 marks)

c) Define income elasticity of demand.

(2 marks)

d) Suppose that at income level of RM1500, demand for good X is 500 units, when income
increases to RM2000, demand for good X increase to 650 units. Calculate income
elasticity of demand for good X and state the type of good.

(3 marks)

11) Given in the table below is the information on the percentage change in price of Good A
and percentage change in quantity of Good B.

% change in % change in Coefficient Relationship

price of Good quantity of Good
A B
+4 +2
+10 -15

Complete the table above. (4 marks)

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ECO 162: Microeconomics Elasticity

12) Given the information below:

Price of Good S Quantity Demanded Income per month

(RM/unit) Good S (unit) (RM)
2 30 1200
4 28 2400
6 26 3600
8 24 4800
10 22 6000
12 20 7200

Answer the following question based on information above

a) calculate the price elasticity of demand for Good S when price of Good S increases
from RM6 to RM12 perunit.
(2 marks)

b) Calculate the income elasticity of demand for Good S when income decreases from
RM6000 to RM2400 per month.
(2 marks)

c) Based on question (b), what type of good S? State your reason.

(2 marks)

d) When price of Good S increases by 25%, the quantity demanded for Good T
increases by 75%. Calculate the cross elasticity for Good T.
(2 marks)

e) List any two (2) determinants of price elasticity of demand.

(2 marks)

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