ASSIGNMENT 1 ECO 162 MICROECONOMICS 1.

. Based on the table below, answer the following question: Income (RM) 1000 1100 1200 1300 Price of Good A (RM) 8.50 7.00 6.50 6.00 Quantity Demanded for Good A (Unit) 450 475 502 548 Quantity Demanded for Good B (Unit) 300 370 480 620

a) Calculate the income elasticity of demand for good B if the consumers income decreases from RM1,300 to RM1,100. (2 marks) b) What type of good is good B? Why? c) If income is constant, calculate prices elasticity of demand for good A if its price rises from RM6.50 to RM8.50. d) Is the demand of good A elastic or inelastic? e) List three factor that influence elasticity of demand of good A. (2 marks) (2 marks) (1 marks) (3 marks)

2. The following table shows the amount of good H and Z demanded by the citizens of a particular country at different prices and consumer income levels. Price of good H (RM per unit) 60,000 65,000 70,000 75,000 80,000 Quantity demanded for good H (unit) 100,000 90,000 70,000 40,000 10,000 Quantity Demanded for Good Z (unit) 20,000 30,000 50,000 70,000 85,000 Income of Consumers (RM) 4,500 3,500 2,500 1,500 500

a) Calculate the price elasticity of demand for good H decreases from RM75,000 to RM60,000. Is the demand elastic or inelastic? (2 marks) b) Calculate the cross elasticity of demand for good Z when the price of good H increases from RM70,000 to RM80,000. What is the relationship between the 2 goods? (2 marks) c) If the consumers income level decreases from RM4,500 to RM500, determine the income elasticity of demand for (i) Good H (ii) Good Z Based on your answer in (i) and (ii), state the type of good. (4 marks) (i) Good H (ii) Good Z 1

State two (2) factors that influence the price elasticity of demand for a good. (2 marks) 3. The schedule below shows the relationship between the price of good X and the quantity demanded for goods X and Y. Price of good X (RM) 5 10 15 20 Quantity Demanded for good X (kg) 160 140 120 100 Quantity Demanded for good Y (kg) 100 120 140 160

a) Calculate the price elasticity of demand for good X if the price of good X rises from RM5.00 to RM10.00 per kg. State whether it is elastic or inelastic. (2 marks) b) Calculate the cross elasticity of demand of good Y when price of X decreases from RM20.00 to RM10.00. State whether good X and good Y are complements or substitutes. (2 marks) c) When the income of consumer decreases from RM 1400 to RM 1000, the demand for good X decreases from 80 to 40 units. Calculate the income elasticity of demand for good X and identify the type of good X. (2 marks) d) List two (2) factors that can influence the price elasticity of demand. 4. The following table shows the demand for goods A, B and C. Year 1996 1998 Quantity (thousands units) Good A Good B Good C 50 72 210 70 68 230 Income (million) 150 160 (2 marks)

Calculate the income elasticity of demand for the three goods when income increases from RM150 million to 160 million. a. Good A __________________________________ b. Good B __________________________________ c. Good C __________________________________ 5. Answer the following questions by using the data in the table. Price of good X per unit (RM) 12 10 8 6 4 Quantity demanded of Good X 4 6 8 10 128 Quantity Demanded of Good Y (unit) 12 10 8 6 4 Consumers income per month (RM) 600 500 400 300 200

a) What is the price elasticity of demand for goods X when its price decreases from RM8 per unit to RM6? (2 marks) b) Calculate cross elasticity of goods Y when the price of goods X increase from RM8 to RM10. 2 (2 marks)

c) Calculate income elasticity of goods X and Y when consumers income decrease from RM600 to RM400. d) Determine the types of goods X and Y. State two (2) factors that influence the price elasticity of demand for a good.

(2 marks) (2 marks)

(2 marks)

6. The following table shows the quantity demanded for goods B, C and D with respect to the price of good A. Price of Good A (cent) 40 30 20 Quantity of Good B (kg) 2 3 4 Quantity of Good C (kg) 5 3 2 Quantity of Good D (kg) 5 5 5 (2 marks)

a) State the formula for the price elasticity of demand and formula for cross elasticity of demand.

b) Calculate the cross elasticity of demand for good B when price of Good A increase from RM30 to RM40. What is the relationship between good A and good B? (2 marks) c) Calculate the cross elasticity of demand for good C when price of Good A decrease from RM30 to RM20. What is the relationship between good A and good C? (2 marks) d) Calculate the cross elasticity of demand for good D. What is the relationship between good A and good D? e) State two (2) factors that influence the price elasticity of demand for a good. 7. A 20 percent rise in the price of good S results in the following: Good T U V Percentage Change in Quantity Demanded Increase by 50% Decrease by 30% Remains the same (3 marks) (2 marks) (2 marks)

a) Calculate cross price elasticity of demand between good S. i. Good T ii. Good U iii. Good V

b) Name the relationship between good S and each of the other goods (based on your answer in a). (3 marks) c) What is the difference between an elastic demand and an inelastic demand. (2 marks)

8. a)

The schedule below shows the demand for goods A, B and C in year 2000 and 2001. Year 2000 2001 (i) (ii) A 40 36 Quantity Demanded B 25 30 C 45 45 Consumers income (RM) 2000 2500

Calculate the income elasticity of demand for the three goods when income decreases from RM2500 to RM2000. (3 marks) State the type of each good and give an example. Good A Good B Good C Type of good _____________ _____________ _____________ Example ______________ ______________ ______________

(3 marks)

(iii) Given that the price of good A is RM4 and RM2 in year 2000 and year 2001 respectively. Calculate cross elasticity between good A and good B when price of good A decreases from RM4 to RM2. State the relationship between the two goods. (2 marks) b) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 9. The following table shows the relationship between Good X, Good Y and consumers income. Price of Good X (RM) Quantity demanded for Quantity demanded for Consumers income per Good X (units) Good Y (units) month (RM) 150 25 60 2 000 130 30 55 1 800 110 35 50 1 600 90 40 45 1 400 70 45 40 1 200 a) Calculate the price elasticity of demand for Good X when its price decreases from RM150 to RM110. (3 marks) b) Calculate the income elasticity of demand for Goods X and Y when consumers income decrease from RM1,800 to RM1,200. (3 marks) c) Calculate the cross elasticity of demand for Goods Y when the price of Good X rises from RM90 to RM130. d) Based on your answer in (c), what are the type of Good X and Y? 4 (3 marks) (1 mark)

d) State two (2) factors that influence the price elasticity of demand for a good. marks)

(2

10. Price and the quantity supplied for each good. Price 3 6 9 12 Good A 15 15 15 15 Good B 6 12 18 24 Good C 2 3 4 5 (6 marks)

a) Find the price elasticity for good A, B & C when price decrease from RM12 to RM6. i. Good A ii. Good B iii. Good C b) Describe the elasticity of each good. i. Good A ii. Good B iii. Good C c) State two (2) factors that influence the price elasticity of demand for a good.

(6 marks)

(2 marks)

d) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 11. Given the following information: Price of Good A (RM per unit) 1 2 3 4 5 Good A 100 50 25 20 18 Quantity Demanded (units) Good B 1 000 500 250 200 180 Good C 10 20 40 80 180 Consumers Income per month (RM) 800 700 600 500 400 (3 marks)

Suppose the price of good A increases from RM2 per unit to RM5 per unit, calculate i) Price elasticity of demand for Good A. State whether demand is elastic or inelastic.

ii) Income elasticity of demand for good A and C when the consumers income increases from RM500 to RM700. (3 marks) 5

iii) Cross elasticity of demand for Good B with respect to Good A. (1 mark) iv) Cross elasticity of demand for Good C with respect to Good A. (1 mark) b) What the relationship between: i) Good A and B? ii) Good A and C? c) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue (1 mark) (1 mark)

d) State two (2) factors that influence the price elasticity of demand for a good. 12. Given the following information: Price of Good X (RM/unit) 10 8 6 4 2 Quantity demanded of Good X (unit) 2 4 6 8 10 Quantity demanded of Good Y (unit) 10 8 6 4 2

(2 marks) (2 marks)

Consumers income (RM/month) 2 000 1 800 1 600 1 400 1 000 (2 marks) (2 marks) (2 marks)

a) Calculate the price elasticity of demand for Good X when its price decreases from RM8 to RM2. b) Calculate the cross elasticity of Good Y when the price of Good X increase from RM4 to RM10. c) What is the relationship between Good X and Good Y? Justify your answer.

d) Calculate the income elasticity of Good X and Good Y when income decreases from RM2000 to RM 1400. What type of good are Good X and Y? (3 marks) e) State two (2) factors that influence the price elasticity of demand for a good. (2 marks)

f) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks)

13. The schedule below shows the relationship between the price of good X and the quantity demanded for goods X and Y. Price of Good X (RM/ kg) 2.00 2.50 3.00 3.50 4.00 4.50 Quantity Demanded for Good X (kg) 800 750 700 650 600 550 Quantity Demanded for Good Y (kg) 900 800 700 600 500 400 (3 marks)

a) Calculate the price elasticity of demand for Good X if the price of X decreases from RM4.50 to RM2.50 per kg. State whether it is elastic or inelastic.

b) Calculate the cross elasticity of demand for Good Y when price of X increases from RM2.00 to RM3.50. What is the relationship between Good X and Y? (3 marks) c) Give any two (2) determinants of price elasticity of demand. (2 marks)

d) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 14. Refer to the table below and answer the following questions. Price of Good X (RM) 5 10 15 20 Quantity demanded for Good X (kg) 160 140 120 100 Quantity demanded for Good Y (kg) 100 120 140 200

a) Calculate the price elasticity of demand for Good X when price of Good X rises from RM5 to RM15. State whether demand for Good X is elastic or inelastic. (2 marks) b) Calculate the cross elasticity of demand for Good Y when price of Good X decreases from RM20 to RM10. What can you conclude from your answer? (2 marks) c) When the income of consumer decreases from RM 1,400 to RM1,000, the demand for Good X decreases from 80 to 40 units. Calculate the income elasticity of demand for Good X and identify the type of Good X. (2 marks) d) Give any two (2) determinants of price elasticity of demand. 7 (2 marks)

15. The following table below shows the hypothetical demands for Good A and Good B for a given price of Good A, and consumers income. Price of Good A (RM) 3 5 Quantity demanded of Good A (units) 150 100 Quantity demanded of Good B (units) 30 60 Consumers Income (RM) 1 000 1 500 (3 marks) (1 mark)

a) Calculate the price elasticity of demand for Good A when price rises from RM3 to RM5. b) Based on your answer in (a), is the demand for Good A elastic, inelastic or unitary elastic?

c) Calculate the cross price elasticity of demand for Good B when price of Good A decreases from RM5 to RM3. (2 marks) d) What is the relationship between Good A and Good B? e) Calculate the income elasticity of Good A when income decreases from RM 1,500 to RM 1,000. f) Give any two (2) determinants of price elasticity of demand. (1 mark) (2 marks) (2 marks)

g) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 16. Refer to the table below and answer the following questions. Price of Good A (RM) 2 4 6 8 10 12 Quantity demanded for Good B (kg) 1 500 1 200 1 000 900 800 600 Quantity demanded for Good C (kg) 1 000 800 600 500 400 200 Income per month (RM) 5 000 3 500 2 000 1 400 1 300 1 000

a) Calculate the cross elasticity of demand for Good B when the price of Good A decreases from RM12 to RM4. (2 marks) b) State the relationship between Good A and Good B. c) Calculate the income elasticity of demand for Good C when income decreases from RM3500 to RM1000 per month. d) Based on question (c), Good C then must be a/an ________________ good. 8 (2 marks) (2 marks) (2 marks)

e) Give any two (2) determinants of price elasticity of demand.

(2 marks)

f) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 17. The table below shows the quantity demanded for goods X and Y at various levels. Income (RM) 2 000 5 000 8 000 10 000 Quantity demanded of Good X (units) 1 800 1 300 1 000 700 Quantity demanded of Good Y (units) 100 200 280 360 (2 marks) (3 marks) (2 marks) (1 mark) (2 marks)

a) Define income elasticity of demand. b) Calculate income elasticity of demand for Good X and Good Y when income decreases from RM10,000 to RM5,000. c) What type of good are goods X and Y? d) Give one (1) example of goods X and Y. e) Give any two (2) determinants of price elasticity of demand.

f) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks)

18. a) The schedule in Table 1 (a) below shows a hypothetical demand for goods A, B and C in year 2003 and 2004. Year 2003 2004 i. ii. Table 1 (a): The demand for goods A, B and C for the year 2003 and 2004 Quantity Demanded (units) Consumers Income (RM) A B C 40 25 45 2 000 36 30 45 2 500 Calculate the income elasticity of demand for the three goods when income decreases from RM2,500 to RM2,000. (3 marks) State the type of each good and give an example. Good A Good B Good C Type of Good _____________ _____________ _____________ Example ____________ ____________ ____________

(3 marks)

b) Indicate what will happen to the Total Revenue (TR), (whether increase, decrease or constant) by filling up the last column in Table 1 (b). Effect on Price Increase Decrease Increase Decrease Table 1 (b): Total Revenue (TR) Effect on Quantity Price elasticity of demand Demanded Decrease More than one Increase More than one Decrease Less than one Increase One Total Revenue

(2 marks) 19. (a) For he following 3 cases, calculate the cross elasticity of demand and identify the type of relationship between the two products. i) ii) iii) The quantity demanded for Good A decreases from 50 units to 40 units as the price of Good B decreases from RM0.30 to RM0.20 a unit. Coefficient: __________________ Relationship: __________________ The quantity demanded for Good A increases from 1,000 units to 2,000 units as the price of Good B decreases from RM15 to RM10 a unit. Coefficient: __________________ Relationship: __________________ The quantity demanded for Good A remains 400 units as price of Good B decreases from RM35 to RM30 a unit. Coefficient: __________________ Relationship: __________________

(b) Complete the following statements. i) The price elasticity of demand measures the responsiveness of ______________________ to a change in _________________. (1 mark) ii) The income elasticity of demand measures the responsiveness of ____________________ to a change in _________________. (1 mark) iii) The cross-elasticity of demand measures the responsiveness of _________________________ to a change in ________________________. (1 mark) 10

iv) The value of cross elasticity of demand for petrol and cars is _____________________. While the value of cross elasticity of demand for camera and film is _________________________. (1 mark) c) Give any two (2) determinants of price elasticity of demand. (2 marks)

d) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 20. Discuss the effects on the demand for rubber shoes (normal good) if the following changes take place: i) a reduction in the price of leather shoes ____________________________________________________________________. (1 mark) ii) an increase in the price of rubber shoes ____________________________________________________________________. (1 mark) iii) a scientific research proved that rubber shoes are more durable ____________________________________________________________________. (1 mark) iv) an increase in consumers income. ____________________________________________________________________. (1 mark)

21. The following is the hypothetical individual demand and market supply schedule for fertilizers in Bandar Jengka. Price (RM) 1.00 1.20 1.40 1.60 1.80 2.00 2.20 Quantity supplied (kg) 25 30 35 45 50 58 65 Quantity demanded (kg) Ahmad Muthu 15 35 13 32 10 29 8 25 5 22 3 18 1 15

Chin 15 14 13 12 11 10 9

a) Using a graph paper, plot the market demand and supply curves of fertilizers and determine the equilibrium price and quantity. (2 marks) b) Calculate the coefficient of price elasticity of demand when price decreases from RM2.00 to RM1.20. (2 marks) c) Based on answer in (b), what should the suppliers do if they want to increase total revenue? (1 mark)

d) If the government decides to set the price of fertilizers at RM1.60 per kg, will there be a surplus or shortage and how much would it be? (2 marks) d) Give any two (2) determinants of price elasticity of demand. 11 (2 marks)

d) Give any two (2) determinants of price elasticity of supply.

(2 marks)

22. The table below shows the quantity demanded for Good L and Good M. Based on the table answer the questions below. Price of Good M (RM) 15 20 25 30 Quantity demanded for Good L (units) 100 80 50 20 Quantity demanded for Good M (units) 500 350 200 150

a) Define price elasticity of demand and calculate the price elasticity of demand for Good M if the price decreases from RM30 to RM15. (3 marks) b) Calculate the cross elasticity of demand for Good L if price of Good M increases from RM20 to RM30. Determine the relationship between the two goods. (2 marks) c) Assume the income elasticity of demand for Good M is +3.0. What does it mean? d) Give any two (2) determinants of price elasticity of demand. (1 mark) (2 marks)

e) Indicate what will happen to the total revenue (whether increase, decrease or constant) by filling up the last column. Price Decrease Increase Increase Increase Quantity Demanded Increase Decrease Decrease Decrease Price elasticity of demand Less than one More than one Less than one One Total Revenue

(2 marks) 23. Suppose that business travels and vacationers have the following demand for airline tickets from Kuala Lumpur to Langkawi. Price (RM) 150 200 250 300 Table 1: The demand for airline tickets from Kuala Lumpur to Langkawi Quantity demanded of tickets (Business travelers) Quantity demanded of tickets (Vacationers) 2,100 1,000 2,000 800 1,900 550 1,800 400 (4 marks) (3 marks)

a) As the price of tickets falls from RM300 to RM200, calculate the price elasticity of demand for both business travelers and vacationers. b) Why might vacationers have a different elasticity from business travelers?

c) Calculate the income elasticity of demand for vacationers if income rises from RM10,000 to RM15,000. Interpret the elasticity coefficient. (3 marks) 12

24. The table below shows the demand and supply schedules of sugar per week at Bandar Permai. Price (RM per Kg) 1.35 1.40 1.45 1.50 1.55 1.60 1.65 1.70 Quantity supplied (Kg) 20 45 70 90 110 125 140 150 Quantity demanded (kg) 100 80 70 65 60 55 50 45

a) Using a graph paper, plot the demand and supply curve of sugar and determine its equilibrium market price and quantity at Bandar Permai. (2 marks) b) (i) Calculate the coefficient of elasticity of supply when price decreases from RM1.65 to RM1.35. Comment on the elasticity value. (ii) Explain one (1) factor that determines the price elasticity of supply for sugar. (2 marks) (1 mark)

c) Due to tsunami disaster, the production of sugar has fallen by 30kg per week at each price level. Plot the new curve on the same diagram in part (a). Determine the new equilibrium market price and quantity of sugar. (1.5 marks) d) Suppose the government has intervened in the market and set a price of RM1.65. Name the type of pricing implemented and give one effect of such pricing policy? (1.5 marks)

e) If the price of sugar increases from RM1.45 to RM1.70, the demand for Good H decreases from 70 kg to 55 kg. Calculate the value of cross elasticity of demand between the two goods and state their relationship. (2 marks) *****(Submit Friday/ 6.1.2012/ 12.00 p.m)*****

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