ECONOMICS

Tutorial 4
PRESENTATION GROUP 3
LEE YUE KEE MOK SU HUI
LIEW JIN HAN SAM MAN YUI
GURSIMAR KAUR
WINNIE NG HUEI XUAN
Question 1:
Define “price elasticity of demand” and show how it is
measured.

Price elasticity of demand is a measure of the

responsiveness of quantity demanded to changes in price.
It addresses the “percentage change in quantity
demanded for a given percentage change in price”.
 There are two ways to measure price
elasticity of demand

1.Percentage change 2. Midpoint approach

Where,
Ed=coefficient of price elasticity of demand
Qd=absolute change in quantity demanded
Qd average=average of two quantity demanded
P=absolute change in price
P average=average of two prices
Question 2: Yesterday, the price of face masks was RM 3.00 per box and Vincent
was willing to buy 10 boxes. Today, the price has increased to RM 4.75 per box
and Vincent is now willing to buy 8 boxes. Using midpoint approach, calculate and
interpret the price elasticity of demand.

- inelastic demand because the

coefficient is <1, which is 0.492
P1 = 3.00
- the percentage change in
Qd1 = 10
quantity demanded < the
P2 = 4.75 percentage change in price
Qd2 = 8 - 1% increase in price, 0.492%
decrease in quantity
demanded, and vice-versa
 Question 3 :
As the price of laptops increases from RM 2,000 to RM 3,500 per unit, the
quantity demanded for laptops decreases from 200 units to 150 units.
Using the midpoint approach, compute and interpret the coefficient of the
price elasticity of demand for laptops.
Interpret :
P1 : RM 2000 Qd1 : 200 P2 : RM 3500 Qd2 : 150 ● Inelastic demand, the coefficient
< 1, which is 0.524.
● The percentage change in quantity
demanded < the percentage
change in price.
● 1% increase in the price, 0.524%
decrease in the quantity
demanded, and vice-versa.
Question 4 (a)
When the price of bubble gum is RM0.50, the quantity demanded is 400 packs per day.
When the price falls to RM0.40, the quantity demanded increases to 600 packs per
day. Using midpoint approach, calculate and interpret the price elasticity of demand.
P1 = RM 0.50
P2 = RM 0.40
Qd1 = 400
Qd2 = 600

- The value of 1.8 is greater than 1 therefore it is an elastic

demand for bubble gum.
- When 1% decrease in price of bubble gum, it will lead to 1.8%
increase in quantity demanded, vice versa.
- The percentage change in quantity demanded is greater than
the percentage change in price.
Question 4 (b)
An increase in the price of chocolates from RM2.25 to RM2.45 causes suppliers of
chocolates to increase their quantity supplied from 125 bags per minute to 145 bags per
minute. Using midpoint approach, calculate and interpret the price elasticity of supply.
P1 = RM 2.25
P2 = RM 2.45
Qs1 = 125
Qs2 = 145

- The value of 1.741 is greater than 1 therefore it is an elastic

supply for chocolates.
- When 1% increase in price of chocolates, it will lead to
1.741% increase in quantity supplied, vice versa.
- The percentage change in quantity supplied is greater than the
percentage change in price.
Question 5
Explain any THREE (3) determinants of price elasticity of demand and
ONE (1) determinant of price elasticity of supply.

1.Number of substitutes
-The more substitutes a good has, the higher the price elasticity of demand
will be.
-The fewer substitutes a good has , the lower the price elasticity of demand
will be.
2.Necessities Versus Luxuries
-The more a good is considered a luxury rather than a necessity , the higher the
price elasticity of demand will be.
-Necessities , such as food and housing, tend to have inelastic demand as
consumers will continue purchase them regardless to the price change.
-Luxury , such as jewerly and high-end cars tend to have more elastic demand
because consumers are more likely to cut back on purchase when the price
increase.
 3.Time
-The more time that passes , the higher the price elasticity of demand for good will
be.
-The less time that passes , the lower price elasticity of demand for good will be.
-Times allows for people to seek out substitutes goods, alter their behavior and so
on.
-Price elasticity is higher in the long run than in the short run.
Price elasticity of supply
Time
-The longer period of adjustment is to change in price , the higher the
price elasticity of supply will be.
-Additional production takes time.
 Question 6:
Using appropriate diagrams,explain the following concepts:
(i)Elastic and inelastic demand;
Elastic demand
Price *The percentage change in
quantity demanded is greater than
the percentage change in price.
*Ed>1
10%
D

20%
Quantity
demanded
 Inelastic demand
*The percentage change in quantity
Price demanded is less than the percentage
change in price.
*Ed<1

10%

4% D
Quantity
0 Q2 Q1 demanded
 (ii)Elastic and inelastic supply
Elastic supply

*The percentage change in quantity

Price supplied is greater than the
percentage in price.
*Es >1
S
10%

20%
Quantity
00 Q1 Q2 supplied
Inelastic supply
*The percentage change in
quantity supplied is less than the
Price percentage in price.
*Es <1

10%

4% Quantity
Q1 Q2
supplied