EXERCISE NO.

4
DEMAND ELASTICITY

Using the hypothetical price-quantity demand relationship below:

Point Price Quantity

A 3 100
B 6 90
C 9 80
D 12 70
F 15 60
G 18 50
H 21 40
I 24 30
J 27 20
K 30 10

a. Solve for the elasticity of demand at points A and E, E and F, F and J. Indicate whether they are
elastic or inelastic
b. Plot the demand curve with its corresponding points
c. Solve for the total revenue
d. Considering the elasticity of the market demand for coffee, what will happen to total revenue if
there will be an increase in the price of coffee? Justify your answer.
 EXERCISE NO. 3
SUPPLY

1. Given the following scenarios describe and illustrate what will happen to the supply of the
following commodities. Indicate whether there will be a RIGHT SHIFT, LEFT SHIFT or NO SHOFT
at all.
a) Just recently the price of sugar has decreased, as a major input for baked products, show
how this will affect the supply of bread.
b) Suppose the IRRI just developed a new high-yielding variety of rice giving 200 cavans foe
very hectare of land. Show the effect on the supply of rice in the market
c) There was a surge in the price of cotton. How will this affect clothing companies?
d) The use of machines in producing processed foods like sardines.
e) A super typhoon destroyed the corn crops of Isabela, a major source of corn in the country.

2. Using the hypothetical price-quantity supply relationship for coffee answer the following
questions:

Quantity Sold (cups)

Price (Php) Manny Fernando Jose
2.00 2 2 1
4.00 6 7 7
6.00 10 10 10
8.00 13 14 13
10.00 15 15 15
12.00 22 20 18

a) Solve for the market supply curve (assumption: there are only three sellers in the market)
b) Plot the supply curve of each seller and the market supply curve where the individual
supply curves were drawn

1.
a. Just recently the price of sugar has decreased, as a major input for baked products, show how this will
affect the supply of bread.

Change in Supply

P S1 Supply curve will shift to the right

S2

b. Suppose the IRRI just developed a new high-yielding variety of rice giving 200 cavans for every hectare
of land. Show the effect on the supply of rice in the market.

Change in Supply

P S1 Supply curve will shift to the right

S2

c. There was a surge in the price of cotton. How will this affect clothing companies?
No Shift

d. The use of machines in producing processed foods like sardines.

Change in Supply

P S1 Supply curve will shift to the right

S2

e. A super typhoon destroyed the corn crops of Isabela, a major source of corn in the country.

Change in Supply

P S2 S1 Supply curve will shift to the left

Q
2.

a.

Price (Php) Quantity Sold (cups)

Manny Fernando Jose Market Supply
2 2 2 1 5
4 6 7 7 20
6 10 10 10 30
8 13 14 13 40
10 15 15 15 45
12 22 20 18 60

b.

Supply Curve for Manny

14

12

10

0
0 10 20 30 40 50 60 70
 Supply Curve Fernando
14

12

10

0
0 10 20 30 40 50 60 70

Supply Curve Jose

14

12

10

0
0 10 20 30 40 50 60 70
 Market Supply Curve
14

12

10

0
0 10 20 30 40 50 60 70
 EXERCISE NO. 4
MARKET EQUILIBRIUM

1. Using the data from exercise 2 and 5, make a tabular and graphical presentation of the market
demand and supply. Determine the equilibrium price and quantity, state of market condition
and the pressure on prices
2. For each of the situation described below, answer the following questions regarding the
mentioned commodity:
a) What curve is affected?
b) Will it cause a shift or movement?
c) What is the direction of the change?
d) What will be the effect on price?
e) What will be the effect on quantity?
f) Illustrate the situation graphically?
1. COCA COLA. Because of the increasing advertising costs, Pepsi decides to raise its price
2. RICE. A drought hits Central Luzon or the whole summer
3. UMBRELLAS. Raincoats become the fad, causing umbrellas to be unfashioned
4. CLOTHES. President Arroyo abolishes income taxes
5. CARS. There is a decrease in the price of steel
3. You are given the following market model:

Demand equation: Qd = 2,500-200 P

Supply equation: Qs = 500+300 P

a) Solve mathematically for the equilibrium price and quantity

b) If the price of the product is P 2.00 and P4.00 respectively, compute for the quantity
demanded and quantity supplied of the product
c) Make a tabular presentation of the quantity demanded and supplied of the product
d) Graphically illustrate the condition of the market
1.

Price Market Demand Market Supply State of Market Pressure on Price

2 58 5 Shortage Upward
4 43 20 Shortage Upward
6 30 30 Equilibrium Neutral
8 16 40 Surplus Downward
10 7 45 Surplus Downward
12 3 60 Surplus Downward

Market Demand and Supply Curve

70

60

50

40

30

20

10

0
0 10 20 30 40 50 60 70

COCA-COLA

P a. Demand curve

b. Movement

P2 c. to the Left

P1 d. Increase in price

e. decrease in quantity

Q2 Q1 Q
RICE

P S2 S1 a. Supply curve

b. Shift

c. to the left

d. Increase

e. Decrease
Q

UMBRELLAS

P a. Demand curve

b. Shift

c. to the left

d. decrease
Q1 e. decrease
Q2
Q

CLOTHES

P a. Demand curve

b. Shift

c. to the right

d. increase
Q2 e. increase
Q1
Q
CARS

P S1 a. Supply curve
S2 b. Shift

c. to the right

d. decrease

e. increase
Q

3. Qd = 2,500 200P

Qs = 500 + 300P

Qd = Qs

2,500 200P = 500 + 300P

2,500 500 = 300P + 200P

2,000 = 500P

P* = 4

Substitute P* to the demand equation

Qd = 2,500 200P

Qd = 2,500 200 (4)

Qd = 2,500 800

Q* = 1700

b. at P = 2.00

Qd = 2,500 200P Qs = 500 + 300P

Qd = 2,500 200(2) Qs = 500 + 300(2)

Qd = 2,100 Qs = 1,100

At P = 4.00

Qd = 2,500 200P Qs = 500 + 300P

Qd = 2,500 200(4) Qs = 500 + 300(4)

Qd = 1,700 Qs = 1,700

4.

Price Quantity Demanded Quantity Supplied

2 2,100 1,100
4 1,700 1,700

5.