PRINCIPLES OF BUSINESS ECONOMICS

A PROJECT REPORT
Submitted in partial fulfilment of the
requirement for the award of the degree of
BBALLB (Hons.)

By
Vishal Singh Tomar
23FL10IBL00050

(Department of Law)
MANIPAL UNIVERSITY JAIPUR
JAIPUR- 303007
RAJASTHAN, INDIA

2023-24

Department of Law
Manipal University Jaipur, Jaipur- 303007 (Rajasthan) India
 ANSWERS

Answer 1: Ep= (ΔQ/ΔP) * P/

ΔQ ( new-initial)= 110-100= 10 units
ΔP (new - initial) = 48-50 = Rs -2
Ep= 10/-2 * 50/100 = -2.5
The product has a relatively elastic demand.

Answer 2: Ey= (ΔQ/ΔY) * Y/Q

ΔQ= 30 – 25= 5 units
ΔY= 200-100= Rs 100
Ey= 5/100 * 100/25 = 0.2

Answer 3: Ea=( ΔQ/ΔA) * A/Q

ΔQ= 2000
ΔA= 6000
Ea= 2000/6000 * 6000/ 8000 = 0.25.
 As this value is positive it is beneficial for the firm to
undergo the promotional expenditure.

Answer 4: Given, change in price (increase) =5%

Elasticity of demand (Ed)=−0.2
(Ed)=%Change in Quantity demanded / %Change in price
(−)0.2=%Change in Quantity demanded / 5
% Change in quantity demanded =−1% (decrease)

Answer 5: Given, price elasticity of demand = -0.2

Increase in price of good = 10%
Ed= %change in quantity demanded / % change in price
% change in demand = -0.2*10%
= -2%
%change in expenditure

%ΔE = %ΔQd + %ΔP

%ΔE = -2% + 10%
= 8%
Therefore, % change in expenditure = 8%

Answer 6 : If the government reduces the number of apartments

near campus that are uninhabitable and need to be turned down for
the next semester, we would like the demand to be elastic in order to
pay the lowest feasible rent.
Answer 7 : Compared to other wealthy nations, France is less
sensitive to long-term price fluctuations, with an elasticity of -0.6.

Answer 8 : With an elasticity of 2.0, the demand curve is relatively

flat. A fall in price would raise total revenue.
Answer 9 : Given, Price = 10 (P)
Quantity = 400 (Q)

Price reduced by = Rs 5 (ΔP)

Change in quantity = 200 unit (ΔQ)

Es = ΔQ / ΔP * P / Q = 100 / 5 * 10 / 400 = 1
It is in unitary elastic demand which mean that the change
In price of product is same.

Answer 10 : When price (P)=Rs.10; total revenue (P×Q)=Rs.50

∴Quantity supplied Q=5010=5units

When price (P1)=Rs.15; total revenue (P1×Q1)=Rs.150
New quantity supplied (Q1)=15015=10units
P=Rs.10;P1=Rs.15;
ΔP=P1−P=Rs.15−Rs.10=Rs.5
Q=5units;Q1=10units;
ΔQ=Q1−Q=(10−5)=5units
Price elasticity of supply Es=PQ×ΔQΔP=105×55 = 2
Answer 11 : Given that P=Rs 5,
P1=Rs 20,
ΔQ=15,
ES=0.5,
ΔP=P1−P=Rs 15
ES=ΔQ / ΔP× P /Q
ES=15 / 15×5 / Q =0.5
Q= 5 / 0.5=10
Q1=Q+15= 25.

Answer 12 : The formula for calculating the price elasticity of demand

is:

Ep= %Change in demand %Change in the price

If the price for a commodity decreases from $2.10 to $1.90, then the
percentage decrease in the price using the midpoint formula is:
%Change in price=1.9−2.1 / (2.1+1.9)/2×100
%Change in price=−0.2 / 2×100
%Change in price=−10%

If the elasticity of demand is -1.5, then the percentage increase in

sales or quantity demanded will be:
Ep = %Change in demand / % Change in the price
-1.5 = %Change in the demand / -10%
-1.5 * -10% = %Change in demand

%Change in demand = 15%

Answer 13 : (a.) less than unity

Answer 14 : Let the %Quantity demand rise = x%

As price lower from 4$ to 2$
%Change in price = 4-2 / 4 * 100 = 2 /4 *100 = 50%
Ep = %Change in quantity demand / % Change in price

2.5 = x% / 50
X% = (2.5 * 50) = 125%

Answer 15 : Elasticity of Supply = 0.8

Orginal quantity = Q = 40
New quantity = Q1 = 60
Orignal Price = P = 10
New Price = P1= ?
Change in Quantity = Orginal quantity - New quantity
∆Q = 40 - 60 = -20
Change in price=Orignal Price - New Price
∆P = 10 - x = ?
Es = ∆Q/∆P × P/Q
0.8 = -20/x ×10/40
x = 6.25
∆P = 6.25

∆P = P -P1
P1 = P -∆P
New price P1 = 10-(-6.25)
= 10 + 6.25
= 16.25

Answer 16 : (a) An equilibrium quantity cannot be affected by a drop

in supply if demand is entirely inelastic.

b) The equilibrium price remains unaffected by a drop in supply if

demand is completely elastic.

Answer 17 : When demand is perfectly elastic and supply decreases,

there will be no change in the price but the quantity decreases. In
the diagram, when supply decreases from SS to S1S1, price remains
constant at OP, but quantity decreases from OQ to OQ1.
Answer 18 : When the supply is perfectly inlestic and demand
increases the price of the commodity increased but the quantity
remain constant .In the diagram , when demand increases fron DD to
D1D1, the price also increased from OP to OP1 but the quantity
remain same at OQ.