Tutorial 4 S 
SHORT ANSWER PROBLEMS
1. Consider the following demand and supply functions:
Qd = 1,600 – 125P
Qs = 440 + 165P
(a) Calculate the equilibrium price and quantity that will prevail under a completely free market.
(b) Calculate the price elasticity of supply and demand at the equilibrium values.
2. Suppose the demand curve for a product is given by Q = 10 – 2P + Ps , where P is the price of the product and Ps is the price of substitute good. The price of the substitute good is $2.00.
Suppose P = $1.00,
(a) What is the price elasticity of demand?
(b) What is the cross elasticity of demand?
3. The following function shows the market demand for wheat:
Q 40 2P 0.2Y Pb where Y refers to income and Pb refers to the price of barley.
Assuming that wheat and barley both sell for RM2, and income is RM10, calculate the price elasticity, cross price elasticity and income elasticity for wheat.
4. State whether each of the following is TRUE or FALSE, giving an appropriate explanation for your answer in each case:
(a) The cross elasticity of demand for all normal good is positive.
(b) When demand is price inelastic, lower prices mean both higher quantities sold and higher revenue for sellers.
5. The table below shows the estimates of income elasticities for potatoes and oranges.
Type of product
Value of the estimates
Potatoes
- 0.5
Oranges
+ 0.36
What does the sign of the income elasticities tell us about potatoes and oranges?
6. The demand for a new computer game, X-Fear, is given as follows:
Q = 200 – 5P – 0.1Pc – 0.5Pd + 0.2A – Y
…where P is the price of the game, Pc is the price of a computer, Pd is the price of a diskette, A is the level of advertising and Y is the level of income.
(i) Suppose P = 10, Pc = 100, Pd = 2, A = 5 and Y = 50, determine the price elasticity of demand of X-Fear.
(ii) Based on your answer to part (i), will consumers spend more on purchasing the
1. Consider the following demand and supply functions:
Qd = 1,600 – 125P
Qs = 440 + 165P
(a) Calculate the equilibrium price and quantity that will prevail under a completely free market.
(b) Calculate the price elasticity of supply and demand at the equilibrium values.
2. Suppose the demand curve for a product is given by Q = 10 – 2P + Ps , where P is the price of the product and Ps is the price of substitute good. The price of the substitute good is $2.00.
Suppose P = $1.00,
(a) What is the price elasticity of demand?
(b) What is the cross elasticity of demand?
3. The following function shows the market demand for wheat:
Q 40 2P 0.2Y Pb where Y refers to income and Pb refers to the price of barley.
Assuming that wheat and barley both sell for RM2, and income is RM10, calculate the price elasticity, cross price elasticity and income elasticity for wheat.
4. State whether each of the following is TRUE or FALSE, giving an appropriate explanation for your answer in each case:
(a) The cross elasticity of demand for all normal good is positive.
(b) When demand is price inelastic, lower prices mean both higher quantities sold and higher revenue for sellers.
5. The table below shows the estimates of income elasticities for potatoes and oranges.
Type of product
Value of the estimates
Potatoes
- 0.5
Oranges
+ 0.36
What does the sign of the income elasticities tell us about potatoes and oranges?
6. The demand for a new computer game, X-Fear, is given as follows:
Q = 200 – 5P – 0.1Pc – 0.5Pd + 0.2A – Y
…where P is the price of the game, Pc is the price of a computer, Pd is the price of a diskette, A is the level of advertising and Y is the level of income.
(i) Suppose P = 10, Pc = 100, Pd = 2, A = 5 and Y = 50, determine the price elasticity of demand of X-Fear.
(ii) Based on your answer to part (i), will consumers spend more on purchasing the