CHAPTER 2
DEMAND AND SUPPLY
1. For the following 3 cases, calculate the cross elasticity of demand and identify the type of relationship between two products.
a. The quantity demanded for Good A increases from 40 units to 50 units as the price of Good B increases from RM0.20 to RM0.30
Coefficient: _____________
Relationship: ____________
b. The quantity demanded for Good A decreases from 2000 units to 1000 units as the price of Good B increases from RM10 to RM15 a unit
Coefficient: _____________
Relationship: ____________
c. The quantity demanded for Good A remains 400 units as price of Good B increases from RM30 to RM35 a unit.
Coefficient: _____________
Relationship: ____________
2. State the correct type of relationship between the two commodities
A
B
Relationship
Pepsi
Coke
Bus
Taxi
Bread
Butter
Tea
Sugar
a. With diagram, explain the effects on price and quantity of good B if price of good A increase.
3. The following table shows the relationship between Good X, Good Y and consumers’ income.
PX
QdX
QdY
I
(RM)
150
25
60
2000
130
30
55
1800
110
35
50
1600
90
40
45
1400
70
45
40
1200
a. Calculate the price elasticity of demand for Good X when its price increases from RM110 to RM130
b. Calculate the cross elasticity of demand for Good Y when the price of Good X falls from RM110 to RM70
c. Calculate the income elasticity of demand for Goods X and Y when consumer’s income increases from RM1800 to RM2000
d. Based on your answer in (c), what type of Good X and Y?
4. Table below shows the relationship between price of Good X and quantity demanded for goods L and N
PX
10
9
8
7
QL
50
46
40
37
QN
9
17
20
24
a. Calculate the cross elasticity between good X and L and good X and N when the price of X falls from RM9 to RM8
b. Determine the relationship between goods
i. X and L
ii. X and N