ME - Tutorial 7

1 . The demand schedule for the product Alpha is given c. 0.09 d. 1.50
by:
6. The demand function for a Detergent and Soaps
Industries Limited (DSIL) for bar soaps is given as follows:
QX = 15000 3000 PX + 7Y + 300 PC
Where QX = Quantity of bar soaps demanded for DSIL;
PX = Price charged by DSIL
PC = Price of the related product
Y = Per capita income of the consumers.
Assume the current price for every bar soap of DSIL =
The price elasticity demand for an increase in the price Rs.5, price of the related product = Rs.6 and per capita
from Rs.5 to Rs.6 is income of the consumer = Rs.6000.
a. 0.87 b. 1.02 The price elasticity of demand for bar soap of DSIL at the
c. 1.67 d. 1.50 current values is
a. 0.342 b. 0.511
2. Demand function for ballpoint pens in Nagpur is
c. 1.255 d. 0.722
Qd = 100 0.5P, the price elasticity of the good at
price Rs.10 is 7. Use info of Q6, the income elasticity of demand for bar
a. 0.054 b. 0.026 soap of DSIL at the current values is
c. 0.055 d. 0.052 a. 0.342 b. 0.958
c. 1.255 d. 0.722
3. Arc price elasticity of supply for the following supply
schedule given that the price decreases from Rs.10 to 8. Use info of Q6, the cross elasticity of demand for bar
Rs.9 per dozen is soap of DSIL at the current values is
Price (Rs./dozen) Quantity supplied (1000 a. 0.343 b. 0.958
dozen) c. 0.041 d. 0.722
6 10
7 20 9. What will be the value of MR when P = Rs.80 and
8 30 demand function is QD = 145 P?
9 40
a. 10. b. 15.
10 50
c. 20. d. 80.
a. 2.15 b. 3.15
c. 2.11 d. 2.05 10. A homemade product was demanded by three
households with three different demand functions viz.,
4. Given the demand schedule, the arc cross elasticity
Q1 = 30.00 1.00P; Q2 = 22.50 0.75P;
between goods A and B is
and Q3 = 37.50 1.25P.
Product A Product B
The market demand function for homemade product is
Price Quantity Price
demanded a. Qm = 99.00 8.00P
10 100 20 b. Qm = 99.00 3.00P
10 80 40 c. Qm = 90.90 3.00P
a. 0.33 b. 0.53 d. Qm = 00.90 3.00P
c. 0.53 d. 0.33 e. Qm = 90.00 3.00P.

5. Compute income elasticity of demand using arc 11. If the demand function for a good is P = 100 2Q,
elasticity of demand. over what range of prices is the demand inelastic?
a. 5 to 50.
b. 0 to 50.
c. Above 40.
d. Above 50.
a. 0.11 b. 1.22 e. 25 to 40.
Solutions
1c

2d

3c

4a

5b

6a

7b

8c

9b

10 e

11 b
For all straight line demand is elastic in the upper left portion than in the lower right portion. This is consequence of
the arithmetic properties of the elasticity measure. The demand becomes inelastic once the elasticity is unitary
elastic. The demand is unit elastic when MR = 0.