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