Information and Communications University

School of Humanities

(Department of Economics)

ASSIGNMENTS
2023

Assignment 3

Instructions. Answer all

Submition date and time: 25 April2023, Time 11hours

1. What is the price elasticity of demand? (5 Marks)

2. The price of a good falls by K10, 000, but the quantity demanded increases from 100 to 120
units. Calculate the price elasticity of demand? (5 Marks)
3. List and explain in detail any four factors, which influence price elasticity of demand. (5
Marks)
4. What is an inferior good? (5 Marks)
5. Demand is said to be……, when the price of a good rises, the quantity demanded falls and the
total expenditure on the good decreases. (5 Marks)
6. How would you classify a good with a positive income elasticity of demand? (5 Marks)
7. How would you classify goods with a negative cross-elasticity of demand? (5 Marks)
8. List the commodities that has a positive price elasticity of demand (5 Marks)
9. Draw and explain in details the 5 categories of price elasticity of demand and supply curves.
(5 Marks)
10. Show how the burden of a tax will be shared between the producer and the consumer when
demand for a product is perfectly elastic. (5 Marks)

QUESTIONS 3.1

a) The following table is a demand schedule for a particular commodity, between which price
range is demand elastic? Explain your answer. Hint: At least three calculations, a reduction
from K8, 000 to K7, 000, K5, 000 to K4, 000 and from K4, 000 to K3, 000.

Price (K’000s) Quantity Demanded

 10 0
9 10
8 20
7 30
6 40
5 50
4 60
3 70
2 80
1 90
0 100

(10 Marks)

b)
i) What do you understand by the term “income elasticity of demand” (6 Marks) ii) Why
should a firm pursuing long term growth be interested in the income elasticity of demand of
its products? (4
Marks)

(Total: 20 Marks)