BCPC 118: ECONOMICS FOR BUSINESS

TUTORIAL QUESTIONS ON DEMAND AND SUPPLY

ANALYSIS/ELASTICITIES
Question One
(a) Explain the following factors as determinants of demand using appropriate diagram(s).
i. Income of the consumer
ii. Price of related commodities
iii. Price of the commodity itself
b. A widespread media reports are made on the health benefits on the consumption of
Auntie Ama’s beans. Explain with the aid of a diagram, the effect of these reportage on
the equilibrium price and quantity of Auntie Ama’s beans.

c. A picture of Nana Akuffo Addo, the flag bearer of the then opposition NPP (now the
President of Ghana) sipping Kalypo drink went viral prior to 2016 presidential election.
The craving for Kalypo drink skyrocketed since then. Assuming the government wants to
take advantage of this situation by granting subsidies to producers of Kalypo in order to
promote made-in-Ghana goods. With the aid of diagram(s), examine the effect of these
two events on equilibrium price and quantity of Kalypo drink assuming the subsidy grant
makes a greater impact.
Question Two
Given the demand function and supply function for the SUV vehicle are as follows:
Qd = 7,000 – 3Px
Qs = 1,000 + 3Px
where Qd is quantity demanded, Qs is quantity supplied and Px is price of SUV vehicle.

a) Calculate the equilibrium price and equilibrium quantity. 4 Marks

b) Sketch the demand and supply functions and the equilibrium on the same graph in your
answer booklet 4 Marks
c) Suppose the Government wants to curtail the use of SUV vehicle for environmental
reasons and imposes a tax upon the suppliers to the tune of GHS 1,000.00 per newly
manufactured vehicle. Compute the new equilibrium price and quantity. 6 Marks
d) Sketch the after-tax results on the original graph in b) above. 2 Marks
e) Indicate the share of the tax between the consumer and producer. 2 Marks
f) How much revenue does the government generate from the tax? 2 Marks
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Question Three
Given the demand and supply functions for Chelsea jersey in a Ghanaian market, respectively,
as:
Qd = 900 – 10P and
P = 15 + 0.05 Qs
where Qd is quantity demanded, Qs is quantity supplied and P is price of Chelsea jersey.

a) Calculate the equilibrium price (in GHȼ) and equilibrium quantity (in shirts). 3 marks
b) Suppose the government deems Chelsea jersey as essential to the wellbeing of Ghanaian
Chelsea fans and decides to grant a specific subsidy of GHȼ15.00 per shirt, derive the
new equilibrium price and quantity. 5 marks
c) Graphically indicate the how much of the subsidy would be enjoyed by the producer and
consumer, respectively. 3 marks
d) Based on your solution to (c), infer from or calculate the elasticity of this commodity.
3 marks
e) How much revenue does the government lose? 3 marks
f) Briefly explain any three determinants of supply of Chelsea jerseys. 3 marks

Question Four
The weekly demand for Kelewele among the 2019 batch of MBA students at UPSA is
Qdx = 900 – 10Px + 0.2I + 5Py – 4Pz
Where Qdx is the quantity demanded of Kelewele,
Px is the price of Kelewele per lb,
I is the consumer income in Ghana Cedis,
Py and Pz are the prices of two goods that are related to Kelewele.
a) Based on the demand function above, is Kelewele a normal good or an inferior good?
1 mark
b) Based on the demand function above, what is the relationship between Kelewele and
good Y? 1 mark
c) Based on the demand function above, what is the relationship between Kelewele and
good Z? 1 mark
d) What is the equation of the demand curve if consumer incomes are GHȼ 40, the price of
good Y is GHȼ 20 and the price of good Z is GHȼ 27? 1 mark
e) Graph the demand function for Kelewele from d) 2 marks

Now suppose the weekly supply function for Kelewele at UPSA campus
is QSx = -260 + 10Px – 2Pi
Where QSx is the quantity supplied of Kelewele and Pi is the price of inputs used in preparing
Kelewele.
f) What is the supply function if input prices are GHȼ 20? 1 mark
g) Graph the supply curve from f) 2 marks

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 h) Compute the equilibrium price and quantity of Kelewele. Suppose authorities at
UPSA are concerned that Kelewele sellers at UPSA are exploiting students by
charging exorbitant price for their Kelewele so they decree that no one should sell
Kelewele above GHȼ 40 per lb. 4 marks
i) What type of price control measure is this? 1 mark
j) Following the decree, will there be excess demand or excess supply of Kelewele at
UPSA? Calculate the excess demand or excess supply? 2 marks
k) To ensure that price control measure stands, the authorities have to produce the
excess demand or buy the excess supply in j) off the market. How much will this cost
the authorities? 2 marks

Question Five
You are the Economic Consultant for Zuku Farms Ghana Limited. Zuku produces cowpea in a
community where producers are able to switch back and forth between cowpea and groundnut
depending on market conditions. Consequently, you were tasked by the management of Zuku
and you estimated the demand function for cowpea as follows:

where is the quantity of cowpea demanded in bags per month, is the average price of
cowpea in Ghana Cedis, is the average price of groundnut in Ghana Cedis, and Y is the
income of consumers.
a. Assuming is initially GH¢31.00 per bag, Y is GH¢1001.50
i. Find the resulting demand function for cowpea and determine the number of bags
Zuku can sell at GH¢ 45.00 per bag.
ii. Management is considering increasing price of cowpea by GH¢10.00 per bag.
Advise management on this price change using the concept of price elasticity of
demand.
iii. Explain why management should be worried about a reduction in the price of
groundnut
Assume also that your estimated supply function for cowpea is as follows:

Where is the quantity supplied of cowpea in bags, and are as defined above, is the
price of fertilizer per bag, is the amount of rainfall (in inches).
If inches and = GH¢31.00.
b. Find the resulting supply function for cowpea and determine the equilibrium price and
quantity.
c. Assuming the government imposes a tax of GH¢10 on every bag of cowpea sold,
determine the new equilibrium price and quantity. Explain the effect of the policy on the
market.
d. Sketch the demand and supply curves (c and d) for cowpea.

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Question Six
In the economy of Queensland, two products (Sta and Star) are prominent due to their quality
and durability. At the price of GHȼ 30 for Sta, 5,000 quantities of Sta are demanded. Stonewall,
a banker lives in this economy and earns a weekly income of GHȼ 2,000. At this income level,
Stonewall consumes 100 quantities of Star monthly. The price of Sta increases by 50%, now
4,000 quantities of Sta are demanded. At the initial price of Sta, 1000 quantities of Star were
demanded but at the new price of Sta, 3,000 quantities of Star are demanded. Stonewall attains
a professional qualification thus his weekly income increases by 20%, at the new income level;
he consumes 200 quantities of Star monthly.

a) Determine the Own Price Elasticity of Demand for Sta and interpret your answer?
3 marks
b) Determine the Cross Price Elasticity of Demand for both products and interpret the
relationship between the two products? 3 marks
c) Determine the monthly Income Elasticity of Demand for Star and explain the nature of
Star to Stonewall? 3 marks

Question Seven

Quantity Quantity Quantity Price of Price of

Income Demanded Demanded Demanded Tat Tot
Period (GHs) of Tat of Tot of Tut (GHȼ) (GHȼ)
January 2,600.00 27 235 130 7.60 13.00
February 3,000.00 30 220 140 7.00 16.00
March 3,200.00 32 210 150 6.80 17.00
April 3,400.00 40 200 160 6.50 19.00
May 3,700.00 45 180 170 600 24.00

a) Calculate the own price elasticity of demand for Tat for the period February – March and
interpret your answer 4 Marks
b) Calculate the own price elasticity of demand for Tot for the period April – May and
interpret your answer 4 Marks
c) Calculate the cross-price elasticity of demand between Tut and Tot for the period March
– April and interpret your answer 4 Marks
d) Calculate the income elasticity of demand for Tat for the period January – February and
interpret your answer 4 Marks
e) Calculate the income elasticity of demand for Tot for the period March – April and
interpret your answer 4 Marks

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Question Eight

a. With the aid of relevant diagram(s), explain the difference between change in quantity
demanded and change in demand.
b. With the aid of relevant diagram(s), explain the difference between change in quantity
supply and change in supply.
c. Analyse the effect of an increase in the price of Ideal milk on demand for Peak milk.
d. With the help of an appropriate diagram, explain the effect of an increase in specific tax
on equilibrium price and quantity when demand is held constant.
e. With appropriate sketch diagram, analyse the effect of maximum price legislation (price
ceiling) on demand for goods and services in an economy.