Session 5 Pre-class

ECN82101

Elasticity of Demand and Supply

Question 1

The examples of elastic goods may include luxury items as well as other certain foods and
beverages because as their prices are changing also affect their demand as well conversely
inelastic goods can be those drugs like tobacco because the demand for them remains constant
even there could be changes in price. Another example for inelastic goods can be utilities
because they don’t have substitutes as they are necessities.

Question 2

As per Khan (2011), if there is an increase in price, the total revenue for the product which is
inelastic will definitely increase because there will be a small change in quantity but still the
business will be earning more revenue which is meant to be increasing.

Question 3

If there is price increase for elastic good, this will result to the decrease of the total revenue as
well because if the price for elastic good is increased, it means that also the quantity demanded
will decrease on a big proportional change which is not good for the business because it may be
incurring low sales for the product (Khan, 2011).

Question 4

Change for the consumer income would change the demand for the product, for example if the
income for the consumer is decreased, also the demand would is likely to decrease if and only if
the commodity is not necessity as an example if the consumer was previously earning $60 and
buying 25Kg for rice, then if the income or salary is reduced to $30 he/she will no longer be able
to buy the other 20Kg of rice. As a conclusion, if the consumer income is increased result to an
increase in demand and vice versa ceteris paribus.

Question 5

When the price of an inelastic good increases, this tends to the supply increases but by a smaller
percentage than the price increase. This is because producers are incentivized to produce more

Done by D. Methode
 Session 5 Pre-class

ECN82101

when the price is higher, but they are also constrained by factors such as production costs and the
availability of inputs.

Example:

The supply of potatoes is inelastic in the short run. This is because it takes time to plant and
harvest new potatoes. If the price of potatoes increases, farmers will produce more potatoes, but
it will take them several months to do so. In the meantime, the supply of potatoes will remain
relatively unchanged.

Question 6

When the price of an elastic good increases, the supply also in meant to increase by a larger
percentage than the price increase. This is because producers are more responsive to changes in
the price of elastic goods.

Done by D. Methode
 Session 5 Pre-class

ECN82101

References

Khan, S. (2011). Total revenue and elasticity (video). Khan Academy. Retrieved September 24, 2023,

from https://www.khanacademy.org/economics-finance-domain/ap-microeconomics/unit-2-

supply-and-demnd/23/v/total-revenue-and-elasticity?utm_campaign=embed

Done by D. Methode