UNITS

TFC

TVC

TC

AFC

AVC

MC

-1-

| Marwadi Education Foundation Group of Institutes-MBA SEM-I Economics for Managers

Work sheet for elasticity of demand

1. When the price of commodity X was Rs. 10 per unit, people consumed 3000 units. With a fall in price to Rs. 9 per unit, they consumed 3150 units. State the formula and measure the elasticity of demand for X. 2. Calculate price elasticity of demand for different years from the following data. Year 1981 1982 1983 1984 Percentage change in price 5.0 -2.5 0 6.5 Percentage change in quantity -3.2 5.6 1.2 -2.5

3. Assume that the average price of a new model of Maruti car in Mumbai is Rs. 4,60,000 and 9,00,000 cars are sold at this price in the first year. If the price elasticity of cars is 1.7, what will be the effect on annual sales when the average price of this new model declines to Rs.4,15,000. 4. Suppose the income of the residents of Ecoville increases by 50% and the quantity of fresh milk demanded increases by 30%. What is the income elasticity of demand? 5. A shopkeeper sells gel pens at Rs.10 per pen. At this price he can sell 120 pens per month. After some time, he raises the price to Rs. 15 per pen. Following the price rise: a. Only 60 pens were sold every month. b. The number of refills bought went down from 200 to 150. c. The number of ink pens customers bought went up from 90 to 180 per month. You are required to find: a. Price elasticity of pens when price increased from Rs.10 to Rs.15 per pen. b. The cross elasticity between refills and gel pens when price increases from Rs. 10 to Rs. 15 per pen c. The cross elasticity between gel pens and ink pens when price increases from Rs.10 to Rs 15 per gel pen. 6. If the quantity of blankets demanded increases from 4600 to 5700 in response to a decrease in their price from Rs. 220 to Rs.190, the price elasticity of demand for blankets is _______. 7. Suppose the sales of bicycles in Pune at various prices are as follows:
-2| Marwadi Education Foundation Group of Institutes-MBA SEM-I Economics for Managers

Price of Bicycles Quantity demanded per month (Rs) (000 Of bicycles) 500 25 700 22 1000 15 Calculate the Arc elasticity of demand between: a. b. c. 8. Price Rs.500 and Rs.1000 Price Rs.500 and Rs.700 Price Rs.1000 and Rs.700 When price goes from $1.50 to $2.50, quantity supplied increases from 9000 to 11,000 units. What is the price elasticity of supply? 9. If a 10% increase in income causes a 5% increase in quantity demanded (at a constant price), what is the income elasticity of demand? 10. If the price of a commodity is Rs.20 per unit the demand for it is 1000 units, but if the price goes up to Rs.24 per unit then the quantity demanded comes down to 500 units only. Calculate the elasticity of demand by percentage method. 11. Calculate the price elasticity of demand if Q1= 4000 units, Q2= 5000 units P1=Rs.20, P2=Rs. 19 12. As a result of increase in the income of a consumer by: a. 4%, his expenditure goes up to 12%. Calculate his income elasticity. b. When income of a person is Rs40 his demand for a particular commodity is 8 units. When his income goes up to Rs.50 his demand for the commodity becomes 40 units. Calculate the income elasticity with the help of ARC method. 13. Suppose a department store has a sale on its silverware. If the price of a plate setting reduced from Rs.300 to Rs.200 and the quantity demanded increases from 3000 platesetting to 5000 plate-setting, what is the price elasticity of demand for silver ware? 14. A discount store has special offer on CDs. It reduces their price from Rs.150 to Rs.100. suppose the store manager observes that the quantity demanded increases from 700 CDs to 1300 CDs. What is the price elasticity of demand? 15. If the local pizzeria raises the price of a medium pizzas form Rs.60 to Rs. 100 and the quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the price elasticity of demand for pizzas is _______.

-3-

| Marwadi Education Foundation Group of Institutes-MBA SEM-I Economics for Managers

16. Suppose the consumers income increases from Rs.30,000 to Rs.36,000. As a result , the consumer increases her purchases of CDs from 25 to 30 CDs. What is the consumers income elasticity of demand for CDs? 17. Let P1=Rs.12, P2= Rs.15 and Q1= 20 units, Q2= 50 units. Find out the elasticity of supply.

-4-

| Marwadi Education Foundation Group of Institutes-MBA SEM-I Economics for Managers