# AlYamamah University Managerial Economic Elasticity of Demmand Questions

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### AlYamamah University Managerial Economic Elasticity of Demmand Questions

Chapter 3

1. The demand curve for a product is given by Qdx= 1,200 – 3Px – 0.1Pz

Where Pz = SR300.

1. What is the own price elasticity of demand when Px= SR140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below SR140?
2. What is the own price elasticity of demand when Px= SR240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above SR240?
3. What is the cross price elasticity of demand between good X and good Z when P=SR140? Are good X and good Z substitutes or complements?

1. Suppose the own price elasticity of demand for good X is -4, its income elasticity is 2, its advertising elasticity is 3, and the cross price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if:
2. The price of good X increases by 10%.
3. The price of good Y decreases by 5%.
5. Income decreases by 8%.

1. Suppose the cross price elasticity of demand between goods X and Y is 4. How much would the price of good Y have to change in order increase the consumption of good X by 20 percent?

Chapter 4

1. A consumer has \$300 to spend on goods X and Y. the market prices of these two goods are Px= \$15 and Py = \$5.
2. What is the market rate of substitution between goods X and Y?
3. Illustrate the consumer’s opportunity set in a carefully labeled diagram.
4. Shoe how the consumer’s opportunity set changes if income increases by \$300. How does the \$300 increase in income alter the market rate of substitution between goods X and Y?

1. A consumer must divide \$600 between the consumption of product X and product Y. The relevant market prices are Px= \$10 and Py = \$40.
2. Write the equation for the consumer’s budget line.
3. Show how the consumer’s opportunity set changes when the price of good X increases to \$20. How does this change alter the market rate of substitution between good X good Y?

1. Consider the following budget line:

100=1𝑋+5𝑌

1. What is the maximum amount of X that can be consumed?
2. What is the maximum amount of Y that can be consumed?
3. What is rate at which the market trades goods X and Y?

1. A consumer must spend all of his income on two goods X and Y. In each of the following scenarios, include whether the equilibrium consumption of goods X and Y will increase or decrease.  Assume good X is an normal good and good Y is an inferior good.
2. Income doubles.
3. Income quadruples and prices double.
4. Income and all prices quadruples.
5. Income is halved and all prices double.

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