SUBJECT: ECONOMICS ANALYSIS
SUBJECT: ECONOMICS ANALYSIS
EXERCISE 2
Part 1. ELASTICITY OF DEMAND
Answer the questions below based on the following demand schedule:
|
POINT |
PRICE OF GOOD X |
QUANTITY DEMANDED OF GOOD X |
INCOME |
PRICE OF GOOD Y |
|
A |
5 |
450 |
1000 |
10 |
|
B |
15 |
300 |
2000 |
20 |
|
C |
30 |
150 |
3000 |
30 |
- Find the following:
- Midpoint price elasticity of demand for good X from point B to point C. Interpret the price elasticity coefficient.
- Point price elasticity of demand for good X at point A. Interpret the price elasticity coefficient.
- Income elasticity of demand for good X from point A to point B. Interpret the income elasticity coefficient.
- Cross-price elasticity of demand for good X from point A to point B. Interpret the cross-price elasticity coefficient.
- Based on the price elasticity of demand for good X from point B to point C, will you raise the price of good X? Why or why not?
- Based on the income elasticity of demand for good X, what kind of good is good X?
- Based on the cross-price elasticity of demand for good X, what is the relationship between good X and good Y.
Part 2. TOTAL, AVERAGE, AND MARGINAL REVENUE
Fill up the table below
|
PRICE |
QUANTITY |
TOTAL REVENUE |
AVERAGE REVENUE |
MARGINAL REVENUE |
|
10 |
1 |
|
|
|
|
10 |
2 |
|
|
|
|
10 |
3 |
|
|
|
Part 3. PRICE ELASTICITY OF DEMAND ACROSS PRODUCTS AND INCOME CLASSES
|
INCOME CLASS |
PRODUCT A |
PRODUCT B |
PRODUCT C |
PRODUCT D |
PRODUCT E |
|
1ST(POOREST) |
0.8 |
2.5 |
1.3 |
0.23 |
2.9 |
|
2ND |
1.2 |
2.0 |
1.6 |
0.25 |
2.0 |
|
3RD |
1.5 |
1.5 |
1.5 |
0.36 |
1.2 |
|
4TH |
1.6 |
0.75 |
1.4 |
0.49 |
1.8 |
|
5TH (RICHEST) |
2.0 |
0.5 |
1.7 |
0.80 |
0.2 |
Answer briefly the following questions:
- If you were to base your business decision solely on price elasticity, which product will you sell to the poorest income class? Why?
- If you were to base your business decision solely on price elasticity, which product will you sell to the richest income class? Why?
- In general, for which product will you be careful in increasing price across all income classes? Why?
- In general, for which product will you have more flexibility in raising price across all income classes?
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