1. Economics Exercise – Topic 5.1
1. What is cross elasticity of demand? Explain and show its formula.
2. The price of Mr. Potato Chips has decreased from $3.00 to $2.50 per pack. This has result in weekly
quantity demanded for Pringles Chips to decrease from 20000 packs to 17000 packs.
a) What is the cross elasticity of Mr. Potato Chips and Pringles Chips?
b) What does your answer in (a) mean?
c) Show the decrease of demand for Pringles Chips on a graph.
3. The monthly demand for portable phone charger has declined from 12000 units to 9000 units when the
average price of mobile phones has increased from $800 to $1000 each.
a) What is the Exy of portable phone charger and mobile phone?
b) What does your answer in (a) mean?
c) Show the decrease in demand for phone charger on a graph.
4. What is income elasticity of demand? Explain and show its formula.
5. The lecturers of Lakeside campus have had their income raised from $50000 to $60000 this year. At
the same time, their weekly demand for food sold at Backofen restaurants increased from 7000 to 8500
meals.
a) What is the Ei for Backofen meals?
b) What does your answer in (a) mean?
c) Draw a graph to indicate the increase in the demand for these meals.
6. The demand for residential flats has decreased from 600 units to 470 units in 2010 in SS13 Subang
Jaya. During that same year, the people in that area saw their average income increased from $42000
to $50000.
a) What is the Ei for residential flats?
b) What does your answer in (a) mean?
c) Draw a graph to indicate the decrease in the demand for residential flats.
7. Define price elasticity of supply. What is its formula?
2. 8. What does it mean that a product has price elastic supply? Price inelastic supply? Explain them with
graphs.
9. The price of flour has increased from $1.00 per Kg to $1.20 per Kg and this results in an increase in the
supply from 50000 kg to 65000 kg. Calculate its Es. What does the Es of flour indicate?
10. What is “short run”? How does it affect the price elasticity of supply?
