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Economics assignment Sample Questions and Answers:
Question 1. Let slope of demand curve = - 0.5 Calculate eD when initial price is $ 20 per unit and initial quantity is 50 units of the commodity. Solution: Slope of demand curve = 1 Slope
eD =
ΔQ ΔP
= .
P Q
ΔQ ΔP
=-
= -
ΔQ ΔP
=-0.5
1 0.5
1 0.5
.
20 50
= |-0.5| = 0.8
Question 2. Explain the effect on expenditure if price of the good is released by 9% and e D is - 0.7. Solution: Since |eD| is 0.7 it is less than one. It is a case of inelastic demand showing lesser percentage change in quantity demanded. Since price of the good rises by 9% it means quantity demand falls by a lesser percentage than 9% Thus, total expenditure rises
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Question 3. Given two demand schedules, determine their elasticity of demand using the total expenditure method.
P
5
4
3
2
1
QA
200
210
230
255
300
QB
200
260
370
600
1300
Solution: Calculating total expenditure for good A and good B, we get:
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P
QA
Total expenditure on A
QB
đ?‘ťđ?’?đ?’•đ?’‚đ?’? đ?‘Źđ?’™đ?’‘đ?’†đ?’?đ?’…đ?’Šđ?’•đ?’–đ?’“đ?’† On B
5
200
1000
200
1000
4
210
840
260
1040
3
230
690
370
1,110
2
255
510
600
1200
1
300
300
1300
1300
Therefore, good A has inelastic demand (eD < 1) as expenditure fails with fall in price good B has demand (eD > 1) as expenditure rises with fall in price.
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Question 4. 1200
Let Qx =
PX
Prove that (a) Total expenditure on good X remain unchanged as PX falls from $6 to Re . 1 (b) Derive value of eD along the demand curve.
Solution: Points
PX
M N O P Q R
6 5 4 3 2 1
đ?&#x;?đ?&#x;?đ?&#x;&#x17D;đ?&#x;&#x17D;
QX=
đ?&#x2018;ˇđ?&#x2018;ż
200 240 300 400 600 1200
Total Expenditure PX.QX 1200 1200 1200 1200 1200 1200
Thus, total Expenditure remain unchanged at $1200 when PX falls from $6 to Re 1. (b) 1200
QX = PX Or
Px. Qx=1200
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