MAGDARAOG, MARI CRIS BSA 302
4 Task Performance - PRELIM
I.
RJ Guitar
Demand Curve
4 500
4 000
4 000
3 500
3 500
3 000
3 000
PRICE
2 500
2 500
2 000
2 000
1 500
1 000
500
0
2
4
6
8
10
12
14
16
18
QUANTITY DEMAND
II. Because of the typhoon in the city, the price of cabbages of rose from P60.00 to P80.00,
and the quantity demanded falls from 150 kilos to 100 kilos.
A. Compute for the price elasticity for this price range.
Ep =
Percentage change in quantity demanded
Percentage Change in Price
% Change in Quantity =
% Change in Price =
Q2 - current quantity
Q1 - previous quantity
P2 - current price
P1 - previous price
Q2 − Q1
× 100
(Q2 + Q1)/2
P2 − P1
× 100
(P2 + P1)/2
% Change in Quantity =
%Change in Price =
100 − 150
−50
× 100 =
× 100 = −𝟒𝟎
(100 + 150)/2
125
80 − 60
20
× 100 =
× 100 = 𝟐𝟖. 𝟓𝟕
(80 + 60)/2
70
Ep =
−40
= −𝟏. 𝟒𝟎
28.57
B. What is the interpretation of this price elasticity of demand?
The price elasticity of demand is inelastic, the quantity sold does not
change much even when the price changes. As a result, a higher price causes a very
small decrease in quantity sold and the total revenue is increases.
C. What happens to the total revenue of sellers when the price of cabbages
increases?
If the cabbages price increases, quantity demand decreases a lot and total
revenue decreases. The income from the higher revenue would not be enough to
offset the large decrease in the quantity of products that the firm will sell.
III.
A. Calculate the interpret the income elasticity for product B, if a customer’s
income changes from P15,000.00 to P25,000.00.
Ep =
Percentage Chnage in Quantity demanded
Percentage Change in income
% Change in Quantity =
Q2 − Q1
× 10
(Q2 + Q1)/2
% Change in Income =
I2 − I1
× 100
(I2 + I1)/2
Q2 - current quantity
Q1 - previous quantity
I2 - current income
I1 - previous income
% Change in Quantity =
% Change in Income =
18 − 12
6
× 10 =
× 10 = 𝟒
(18 + 12)/2
15
25,000 − 15,000
10,000
× 100 =
× 100 = 𝟓𝟎
(25,000 + 15,000)/2
20,000
Ep =
4
= 𝟎. 𝟎𝟖
50
The income elasticity of demand is positive, it considered the commodity as
a normal good. Normal goods have a direct relationship between income and
demand.
B. Calculate and interpret the income elasticity for product A, if another customer’s
income changes from P15,000.00 to P25,000.00.
% Change in Quantity =
% Change in Income =
15 − 20
−5
× 10 =
× 10 = −𝟐. 𝟖𝟔
(15 + 20)/2
17.5
25,000 − 15,000
10,000
× 100 =
× 100 = 𝟓𝟎
(25,000 + 15,000)/2
20,000
Ep =
−2.86
= −𝟎. 𝟎𝟔
50
The income elasticity of demand is negative, the product is inferior good.
Inferior good is a good whose demand decreases as incomes increase, or demand
increases as incomes decrease.