MB 504-Microeconomics for

Managers

Assignment -1

Name – Manish Shekhar

Roll No. – 2401res78

Program Name – E-MBA

Semester – 1

Subject - Microeconomics for Managers

Submission Date – 23-March-2024

Question: Consider a hypothetical firm which is producing a normal good with a very high
price elasticity of Demand. As a producer, a firm has to understand the price elasticity of
Demand. You are requested to complete two exercises:

a. Prepare a table showing the price elasticity of demand of a good.

b. Also make a graph to show the changes in the price and its impact on demand.

Solution:

Elasticity of demand is an important variation on the concept of demand. Elasticity

represents how much consumers reacts.

Normal goods have a positive coefficient of income elasticity of demand and a negative
coefficient of price elasticity of demand.

There is company named M/s ABC Organics produces organic items like green tea,
organic staple food items and beverages. To understand the price elasticity, considering
their hot-selling item i.e., ‘Organic Honey-Lemon Green Tea’. Here is the data of price and
demand for this item ‘Organic Honey-Lemon Green Tea.’

PED (Price Elasticity of

%Change in Qty
%Change in Price Demand)
Qty Demanded
Quarter/Year Price (P2-P1)/((P2+P1)/2) PED = (% Change in
Demanded (Q2-Q1)/((Q2+Q1)/2)
*100 Quantity Demanded) / (%
*100
Change in Price)

Jan-22 90 765 - - --

Jan-23 110 623 -20.46 20.00 -1.02

Jan-24 125 546 -13.17 12.77 -1.03

Price Elasticity of Demand

140

120

100

80
Price

60

40

20

0
0 200 400 600 800 1000
Demand
Interpretation and Summary –

Company had review meeting with Board members, staff and Sales team and they analyzed
sales data of 3 years (Year on Year) and saw that with increase in price, sale of item is
decreasing. Here we can see that PED is greater than 1 (ignoring the negative sign) which
shown that the commodity has high elasticity of demand.
(Negative sign in Price elasticity of demand shows the inverse relationship between Price
and demand of the commodity).

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