Test Q 01:

The price of a good is Tk. 1.20 per unit and annual demand is 800,000 units. Market research
indicates that an increase in price of 10 pence per unit will result in a fall in annual demand of
70,000 units.

Requirement

Calculate the elasticity of demand when the price is Tk. 1.20.

Test Q 02:

Product A currently sells for Tk. 5, and demand at this price is 1,700 units. If the price fell to Tk.
4.60, demand would increase to 2,000 units.

Product B currently sells for Tk. 8 and demand at this price is 9,500 units. If the price fell to Tk.
7.50, demand would increase to 10,000 units.

In each of these cases, calculate:

(a) The price elasticity of demand (PED) for the price changes given; and

(b) The effect on total revenue, if demand is met in full at both the old and the new prices, of
the change in price.

Test Q 03:

Suppose that when an average customers income increases rises from Tk.18,000 to Tk. 22,000
per year, annual housing purchases increase from 5,500 units to 6,700 units. Calculate the
income elasticity of demand. Is housing a normal good? Why or why not?

Test Q 03:

The price of Seagrims has fallen by 5% in the last month, and in the same period demand for
Halcets, where there has been no price change, has risen by 8%. What is the cross price elasticity
of demand between Seagrims and Halcets?