ECO10004: ECONOMIC PRINCIPLES

WEEK 4_TUTORIAL QUESTIONS

Student: Van Ngoc Tuan Kiet – SWS00158

Question 1:
I choose d. When the price of cigarettes increases by 1%, the quantity
demanded for cigarettes decreases by 0.4%. First a. and b. is wrong
because the difference between units to figure out. The formula of
elasticity is equaled by proportion of change in quantity demanded for
product divide the proportion of change in price of that product.
Therefore, d. is my answer.
The quantity demanded for cigarettes in Australia is sensitive to the
change in price.
The quantity demanded for cigarettes in Australia is inelastic because
the percentage change in quantity demanded is less than the
percentage change in price.

Question 2:
a. By using mid-point formula, the price elasticity of demand for the
latest J.K Rowling novel in Aran’s bookstore is:
(50-40)/ ((50+40)/2) : (25-35)/ ((25+35)/2) = -2/3 = -0,(6)
b. The demand for novel is inelastic
c. In my point of view, Aran shouldn’t reduce the price of that novel. If
he make that decision, the estimated revenue he receive is about
$1250, less than currently, which is $1400.

Question 3:
As far as I know, I totally disagree with Vu’s opinion. The elastic or
inelastic price is decided by the absolute value in comparison with 1. In
this case the price elasticity of demand for low-fat milk in Australia is
about -2.07. Therefore, its absolute value is 2.07, which is greater than
1. Hence, the price is elastic.

Question 4:
The price elasticity of demand for Harrison’s milk last month was too
big so the buyers stopped buying his product. His business has about
1500 competitors and when he rose the price of his product, the buyers
can still buy from others like the substitute. That’s why Harrison’s sales
last month declined dramatically to zero.
Question 5:
a. Lacoste polo shirts - Luxuries versus necessities
b. Petrol (in long run) – The length of time involved
c. Domino’s Pizza – Availability of close substitutes

The Lacoste Polo Shirts is Luxury products so the value of the price
elasticity is higher than 1
The Drugs for cancer treatment is necessities, therefore, it is inelastic
and the value of price elasticity is lower than 1.