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HE5091 Jan 2024 Tutorial 2.student Version

This document contains 4 questions from a Principles of Economics tutorial at Nanyang Technological University. Question 1 asks to calculate the price elasticity of demand and determine if a company should raise prices for a product based on its demand function. Question 2 compares the effects of a technological improvement on the equilibrium price and quantity of rice and vegetables. Question 3 classifies a product based on its price elasticity of demand and calculates revenue impacts of a price change. Question 4 determines the optimal quantities of buns and cakes for an individual based on their budget and utility from consuming different combinations.

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96 views2 pages

HE5091 Jan 2024 Tutorial 2.student Version

This document contains 4 questions from a Principles of Economics tutorial at Nanyang Technological University. Question 1 asks to calculate the price elasticity of demand and determine if a company should raise prices for a product based on its demand function. Question 2 compares the effects of a technological improvement on the equilibrium price and quantity of rice and vegetables. Question 3 classifies a product based on its price elasticity of demand and calculates revenue impacts of a price change. Question 4 determines the optimal quantities of buns and cakes for an individual based on their budget and utility from consuming different combinations.

Uploaded by

新山宽中时事校队
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Nanyang Technological University

HE5091 Principles of Economics


January Semester 2024
Tutorial 2

Question 1

A large company estimates that the demand function for its product is P = 120
– 10Q. It is currently selling the product at $40 per unit. Calculate the price
elasticity of demand at this price. Do you think it is a good idea for the
company to raise its price to earn more revenue? At what price does the
company maximize its revenue?

Question 2

Consider a farmer producing two products, rice and vegetables. It is discovered


that the demand for rice is relatively more inelastic compared to the demand for
vegetables. Initially the price of rice and vegetables per kg is the same and the
farmer produce the same quantity of rice and vegetables.

Now there is an improvement in agricultural technology that affect both rice


and vegetables production equally. Compare and contrast the effect on the
equilibrium price and quantity of both rice and vegetables from this
technological improvement.

Explain which product will contribute more to the farmer’s revenue after the
change in technology. Support your answers with one suitable diagram.

Question 3

Consider a company which sells two products, Product A and Product B. The
price elasticity of demand for Product A is −2.3 and the cross-price elasticity of
demand for Product B with respect to the price of Product A is 0.6. Classify the
product A accordingly to its price elasticity of demand and specify the
relationship between Product A and Product B. Calculate the impact on
revenues from A and B separately, if the company were to reduce the price of
Product A by 10% and keep the price of Product B unchanged.

1
Question 4

John has $60 to spend on buns and cakes. The price of buns is $6 per unit and
the price of cakes is $12 per unit. His total utility of the two goods at the
various quantities are shown in the table below:

Quantity of Total Utility of Quantity of Total utility of


Buns buns Cakes Cakes
1 36 1 84
2 60 2 156
3 78 3 216
4 90 4 264
5 96 5 288

List the possible combinations of the buns and cakes for John according to the
rational spending rule. Determine John’s optimal quantity of buns and cakes.

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