CANADA,ELIZABETH MANAGERIAL ECONOMICS

BSA-3 MS. ANGEL RICAPUERTO

1.    Suppose the price for milk goes from P40.00 to P60.00. As this happened, the quantity demanded
decreased from 80 to 60 milks.
a.    Plot this demand in a graph.
b.    Compute for the elasticity of demand coefficient of milk.
c.    Identify if milk does have elastic or inelastic demand.

a. Here's a graph that shows the demand for milk:

PRICE

60

40
Quantity of Demand
( Milk )

b. To compute the elasticity of demand and the coefficient of milk, we can use the following formula:

Elasticity of Demand = ( Change in Quantity Demanded) / (Change in Price)

Therefore, the elasticity of the demand coefficient of milk is:

Elasticity of Demand = ( % Change in Quantity Demanded) / ( Change in Price)

= (-25%) / (50%)

= -0.5 %

c. Milk has elastic demand, according to the elasticity of demand coefficient calculated above. This means that a
change in price will result in a significantly higher change in quantity demanded.

2.    What is the elasticity of demand for holiday concern tickets given the following data?
              Price                  Quantity
Old       P400.00                10,000    
New       380.00                 12,000
a.    Plot this demand in a graph.
b.    Compute for the elasticity of demand for concert tickets.
c.    Identify if concert tickets does have elastic or inelastic demand.
a. To plot the demand in a graph, we can use the given price and quantity data to create a demand schedule:

P400

P380

10,000 12,000
Quantity Demanded

b. To compute for the elasticity of demand, we can use the formula:

Elasticity of Demand = ( Change in Quantity Demanded) / (Change in Price)

% change in quantity demanded 20%

---------------------------- = ------- = -4 is the elasticity of demand for concert tickets.

% change in price -5%

c. We can claim that concert tickets have elastic demand since the absolute value of the elasticity of demand is
greater than one.

3.    If a 20% fall in the price of Hello magazine coincides with a 4% fall in the sales of OK! magazine, then what
is the cross-price elasticity of demand? Is OK! Magazine a substitute or complementary to Hello magazine?

- The cross-price elasticity of demand assesses how responsive one good's demand is to a change in the price of
another good. It is possible to compute it using the following formula:

Cross-Price Elasticity of Demand = (% change in quantity demanded of OK! Magazine) / (% change in price of
Hello Magazine)

Cross-Price Elasticity of Demand = (-4% / 20%) = -0.2

The negative sign implies that the two commodities are substitutes, which means that when the price of Hello
magazine declines, customers are less inclined to purchase OK! magazine. 

4.    If the elasticity of demand for spring break packages to Cancun is -5, and if you notice that this year in
Cancun the quantity of packages demanded increased by 10%, then what happened to the price of Cancun
vacation packages?

- Elasticity of demand = percentage change in quantity demanded / percentage change in price

= 10% /-5

= -2%

The result's negative sign implies that the price of Cancun vacation packages was reduced by 2% in order to
achieve a 10% increase in quantity demanded.

5.    If the average quantity of tea consumed per head in the UK falls from 2.0 kg to 1.9 kg per year when the
price of coffee falls from P3.00 to P2.70 per 100g jar, the cross-elasticity between tea and coffee is what?

- Cross-elasticity = % change in quantity demanded of tea / % change in price of coffee

Cross-elasticity = % change in quantity demanded of tea / % change in price of coffee

= 5% / -10%

= -0.5

The cross-elasticity of tea and coffee is -0.5, showing that the two items have an inverse connection.
This means that as the price of coffee lowers, so does the demand for tea, demonstrating that they
are substitutes.