MULUNGUSHI UNIVERSITY

INTRODUCTION TO MICROECONOMICS (SSE121) TUTORIAL SHEET

THREE

1. Define the following terms:

a. Elasticity
b. Price Elasticity of Demand
c. Inelastic Demand
d. Income Elasticity of Demand
i. Perfect elastic Demand
e. Elastic Demand
f. Unitary Demand
g. Cross Price Elasticity
h. Elasticity of Supply

2. What does it mean for a good to have a perfectly inelastic demand? Draw a
demand curve of this type. Explain why it has the shape that it does.
3. What does it mean for a good to have a perfectly elastic demand? Draw a demand
curve of this type. Explain why it has the shape that it does.
4. Suppose the taxi fare from PCC to Kabwe rose 60%, taxi men find that
passengers fell by 80%. Calculate the price elasticity of demand for taxi rides
from PCC to Kabwe.
5. A sporting goods store has estimated the demand schedule for Brand A running
shoes
Price per pair Shoe sales per week Case
(Quantity demand)
10 600 A
20 500 B
30 400 C
40 300 D
50 200 E
60 100 F
I. Cases A and B,
II. Cases C and D
III. Cases E and F

6. Fill in the following amounts in the following table

%CHANGE IN %CHANGE IN ELASTICITY
PRICE QUANTITY
Demand for john’s 10% -12% a
shawarma
Demand for mineral -20% b -0.5%
water
Demand for scones c -15% -1%
Supply of chickens 10% d 1.2

Supply of beef cattle -15% -10% e

7. When the price of bread rises from $1.25 to $1.50 per loaf, quantity demanded
falls from 5,800 per week to 5,500.
(a) Calculate total revenue both before and after the price change.
(b) What can we tell about the price elasticity of demand for bread based on the
changes in total revenue? (HINT: based on the changes in total revenue is the
good an inelastic or elastic good)
8. From the information in the following table,
 Income Quantity Demanded

$10,000 50

$20,000 60

$30,000 70

$40,000 80

$50,000 90

(a) Calculate the income elasticity of demand for this good if income increases from
$10,000 to $20,000,
(b) Calculate the income elasticity of demand for this good if income increases from
$40,000 to $50,000. Is this a normal or an inferior good? How can you tell?
(c) Does the proportion of household income spent on this good increase or decrease
as income increases?

9. Sahara demand and supply curves for No.2 pencils in are Qd = 100-20P and Qs
=10+40P respectively. Given the price of No.2 pencils is $1.50
(a) Calculate the price elastic of demand and the price elasticity of supply when the
price increase $2.00
(b) Determine Sahara income elasticity of demand if an increase in her income (from
$10,000 to $11,500) doubles her demand for No.2 pencils.
(c) Suppose a decrease in the price of pens from $20 to $15 caused the demand for
No.2 pencils to reduce by 50% calculate the cross-price elastic of demand and
interpret your result.