TUTORIAL 11

Tutorial (Week 4)
Question 1
Price
Qty Demanded
(Income = RM4,000)
Qty Demanded
(Income= RM5,000)
5
20
25
8
16
22
11
12
19
14
8
16
17
4
13

a. Use the midpoint method to calculate your price elasticity of demand as the price of T-shirt increases from RM5 to RM8 if
(i) Your income RM4,000
(ii) Your income RM5,000
b. Calculate your income elasticity of demand as your income rises from RM4,000 to RM5,000 if
(i) The price is RM14
(ii) The price is RM17

Question 2
Consider public policy aimed at smoking
a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. if a pack of cigarettes currently costs RM8 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?
b. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking 1 year from now or 5 years from now?
c. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?

Question 3
Suppose the business travelers and vacationers have the following demand for airline tickets from Kuala Lumpur to Kota Kinabalu:
Price
(RM)
Quantity demanded
(Business travelers)
Quantity Demanded
(Vacationers)
150
2,100
1,000
200
2,000
800
250
1,900
600
300
1,800
400

a. As the price of tickets rises from RM200 to RM250, what is the price elasticity of demand for
(i) Business travelers
(ii) Vacationers
(Use the midpoint formula for your calculation)
b. Why might vacationers have a different elasticity from business travelers?