Tutorial 4

Elasticity

1. What is the definition of price elasticity of demand and supply?

2. Identify and explain the elements that influence demand and supply price elasticity.

3. For each of the following, calculate the price elasticity coefficient for demand and
supply. Determine the elasticity type.

a. After a 40 percent price reduction, the number of cans demanded for a soft
drink increases by 30%.

b. Following a 6% increase in rentals, the number of available flats increases

by 8%.

c. When the price of a small burger drops from RM5 to RM4, the number of
small burgers required at a restaurant increases from 60 to 80 per week.

d. Each month, 10,000 gas grills were delivered at a cost of RM200. Because
of the cost since the price increased to RM250, 14,000 are supplied each
month.

e. Following an increase in the rental amount from RM2 to RM2.5, the number
of DVDs demanded from a movie rental service each weekend has
decreased from 500 to 400.

4. Based on the table, answer the following questions

Price per item (RM) Quantity Demanded Quantity Supplied

1.25 150 0
2.50 140 50
3.75 125 60
5.00 105 70
6.25 80 80
7.50 50 90
8.75 10 100
10.00 0 110
 a. Determine the price elasticity of demand and supply as the price rises from RM
2.50 to RM 5.00. Indicate the elasticity type for each.
b. When the price drops from RM 8.75 to RM5.00, calculate the price elasticity of
demand and supply. Indicate the elasticity type for each.

5. Based on the table, answer the following questions

Price per item for Quantity Quantity Quantity Quantity
Good B (RM) Good A Good B Good A Good B
Income RM3000 Income RM5000
1.25 150 200 250 300
2.50 140 180 230 270
3.75 125 150 200 250
5.00 105 100 180 200
6.25 80 70 150 170
7.50 50 50 100 150
8.75 10 30 70 100
10.00 0 10 40 70
a. Determine the cross-price elasticity of Good A for income levels of RM3000 and
RM5000 when the price rises from RM3.75 to RM8.75. What kind of Good A are you
looking for?

b. Calculate Good A's cross price elasticity for incomes of RM3000 and RM5000 when
the price drops from RM7.50 to RM 2.50. What kind of Good A are you looking for?

b. Determine the income elasticity for Good A at a price of RM 5.00 if income increases
from RM3,000 to RM5,000, and specify the type of goods A?

d. Determine the income elasticity of Good B at RM 6.25 if income falls from RM5,000 to
RM3,000 and describe the type of products A?