CROSS PRICE ELASTICITY & INCOME ELASTICITY

Q1. When price of jam fell from Rs 5 to Rs 2, quantity demanded of

bread increased from 30 to 40. What type of good is it? Calculate
cross price elasticity.
Q2. When Price of B fell from Rs 15 to Rs 10, quantity demanded
of good A also fell from 60 to 50. What type of good is it? Calculate
cross price elasticity.
Q3. In Country Z, demand for Cars is 800 and demand for public
transport is 15,000. Find cross price elasticity, if with a sudden spike
in oil prices by 20%, the demand for car and public transport changes
to 500 and 20,000 respectively.
(Finding e x (cross price elasticity) in terms of Cars (demand for cars
when price of oil rises)
Q4. If Income level of the consumer falls from Rs 250 to Rs 150, and
the quantity of commodity demanded goes down from 70 to 50,
i. What can you infer about the type of commodity by calculating
income elasticity?
ii. What happens if demand rises to 100?
Q5. If Q=3000-5P+15Px-2Pz+0.2Y
Where p=60, Px=30, Pz=100 and Y=10000.
i. Find cross price elasticity
ii. Income elasticity and type of good.
This has not been done in class! Never the less, have a go….
Q6. Calculate income elasticity of demand from the following table,
using midpoint method, when price of shoe is $8 and the average
income rises from 10000 to 20000. Also calculate it when price of
shoe is $9.
Price of Shoes Quantity demanded Quantity demanded
when Average when Average
 income is $10,000 income is $20,000
7 2000 4500
8 1400 3000
9 1000 2600
10 700 1000

Q7. The average annual income rises from $15,000 to $26,000, and

the quantity of McDonald’s Burger consumed in a year by the average
person falls from 70 to 30 burgers. What is the income elasticity of
burger consumption? Is McDonald’s Burger a normal or an inferior
good?
Q8. Suppose the cross-price elasticity of Pepsi with respect to the
price of Coke is 0.8, and the price of Coke falls by 6%. What will
happen to the demand for Pepsi?
Q9. When income of consumer increased from $3000 to $6000, his
demand for good X fell by 20 units. Given that Px= 5, find income
elasticity if 4P = 50-Q0
Again, a tough one to crack!
Q10. A consumer faces demand Q0 = 500 - 2PX, for a TV. Find income elasticity
if his Income rises by 30% leading to 10% rise in demand for TV.
(Given: Px =50, initial income=30)