MALIGAYA, CASTOR TROI F.

BSBA HR1-G2
BASIC MICROECONOMICS

UNIT 4: CONCEPT OF ELASTICITY

ACTIVITY: ELASTICITY QUESTIONS AND PROBLEMS (S.F)

Please answer these questions completely and thoroughly.

1. Briefly discuss why the negative sign is usually ignored when computing for
price elasticity of demand.

ANSWER .

The price elasticity measure's absolute value is sometimes stated. The minus
sign is effectively ignored because it is predicted that the amount demanded and
price will have a negative (inverse) relationship.

2. Briefly explain the effect of price elasticity of demand to the total revenue. Cite
an example.

ANSWER.

If the demand is elastic, a price increase will result in a rapid decrease in demand
as a result total revenue decreases.
Total revenue= price × demand
Elastic demand means if the price of the product changes, demand will change
drastically.
Let's take an example
Price of a product= Rs 10per unit
Quantity demanded= 100 units
Total revenue Rs 1000(10×100)
Now, what if the price of the product is increased.
Price of a product= Rs 12 per unit
Quantity demanded= 80 units(say)
Total revenue = Rs 960

3. Compute the total revenue and price elasticity of demand . Use the formula
for point elasticity.

Points Price Qty Demanded

A 50 150
B 45 200
C 40 250
D 35 300
E 30 350
F 25 400
G 20 450
H 15 500
I 10 550

Please add a fourth column for Total revenue and a fifth column for Price Elasticity of
Demand
Points Price of Quantity Demand of Total Price Elasticity of
Good x Good x Revenue Demand
(Px) (Qdx) (P x Qd)
A 50 150 7,500 -3.3
B 45 200 9,000 2.27
C 40 250 10,000 -1.6
D 35 300 10,500 -1.21
E 30 350 10,500 -0.82
F 25 400 10,000 -0.625
G 20 450 9,000 -0.44
H 15 500 7,500 -0.30
I 10 550 5,500 -3.34

SOLUTIONS:
PRICE ELASTICITY OF DEMAND
1. The income of Mr. De la Cruz increased from P300 to P450 a day. His demand
for grocery items increased from 200 to 500. Compute for his income elasticity of
demand.

2. The price of product A increased from P20 to P40. The demand for Product B
went up from 100 to 200. Calculate the cross elasticity of demand.

Solution: