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Assignment I

This document contains an assignment on managerial economics from CMS Business School. It includes 11 questions related to concepts like elasticity of demand, own price elasticity, cross price elasticity, income elasticity, and promotional elasticity. Students are asked to interpret elasticity estimates for various goods, compare demand for bidis and cigarettes in rural and urban areas, draw diagrams for demand and supply curves and degrees of elasticity, and calculate various elasticities from data provided.

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Shubakar Reddy
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905 views

Assignment I

This document contains an assignment on managerial economics from CMS Business School. It includes 11 questions related to concepts like elasticity of demand, own price elasticity, cross price elasticity, income elasticity, and promotional elasticity. Students are asked to interpret elasticity estimates for various goods, compare demand for bidis and cigarettes in rural and urban areas, draw diagrams for demand and supply curves and degrees of elasticity, and calculate various elasticities from data provided.

Uploaded by

Shubakar Reddy
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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CMS Business School

Managerial Economics
Assignment I (for section B1, E1, and G1)
1) The following table presents a summary of some estimates of demand elasticities done
by Harvard University made in the US and Britain.
Commodity Price elasticity of Demand Income elasticity
Tomatoes 4.60 -
Restaurant Meal 1.63 1.40
Glassware 1.34 -
Taxi Service 1.24 -
Radio & TV Service 1.19 -
Furniture 1.01 1.48
Housing 1 -
Alcohol 0.92 1.54
Movies 0.87 -
Foreign Air Travel 0.77 -
Shoes 0.70 1.40
Auto Repair 0.36 -
Medical Insurance 0.31 0.92
Gasoline and Oil 0.14 0.48
Owner Occupied Housing - 1.49
i) Explain the concept of Elasticity of Demand in Brief.
ii) Interpret with explanation the price elasticity of demand for the given products.
iii) Interpret with explanation the income elasticity of demand for the given products.

2) Rijo John has tried to estimate own and cross price elasticities for tobacco products in
India. His findings for own price elasticities are reported in the table below.
Bidis Cigarettes
Rural 0.91 0.41
Urban 0.87 0.17

Compare the demand for bidis and Cigarettes in rural and urban areas.
3) Draw neat diagrams for i) Demand Curve ii) Supply Curve iii) demand elasticity iv)
degrees of demand elasticity.
4) The demand for a product priced Rs. 10/unit and Rs. 8/unit is 200 and 400 units
respectively. Compute the point and arc elasticities (with diagram).
5) The demand for a particular product was found to change from 1200 units to 900 units
when the income of the consumer fell from Rs. 45,000 to Rs. 41,000. Compute the
income elasticity of demand for the product.
6) A pen company is able to sell 4,200 units of its latest softgel model pen priced at Rs.
14 per piece. A survey conducted by the company’s research team shows that if the
price of the pen could be lowered by Rs. 2, the company would be able to sell 6,300
units of this pen. What is the price elasticity of demand for the pen?

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7) At a price of Rs. 450 per unit, the shoe company generate an additional revenue of Rs.
536 for every one additional pair of shoes sold. Find out the price elasticity of demand
for the shoes.
8) Two goods, tea and coffee, are related in such a way that when the price of any one is
varied, the demand for the other also varies. It was found that for consumers who are
used to consume tea, the demand for tea fell from 240 kg to 220 kg when the price of
coffee was decreased from its current price of Rs. 65/kg to Rs. 55/kg. Find out the cross
elasticity of demand for tea and state the relationship between the two.
9) Advertisements happen to be a very important factor for pushing up the demand for any
product. A company presently sells 7000 units of shoe polish at a price of Rs. 35 per
unit. In view of sluggish demand, it decides to increase its outlay on advertising from
Rs. 14 lakh to 24 lakh. If the promotional elasticity of demand for shoe polish is 1.6,
find out the new demand for shoe polish.
10) The demand for a particular brand of readymade shirts is found to vary with the
consumer’s income and its own price in the following manner:

Demand (units) Price (Rs./unit) Income (Rs.)


3000 750 5000
3600 650 5000
4500 650 6000

i) Find out the price elasticity of demand for the shirts by using all the possible
methods.
ii) Find out the income elasticity of demand for the shirts.
11) The demand for petrol rises from 500 kl to 600 kl when the price of a particular scooter
is reduced from Rs. 25000 to Rs. 22,000. Find out the cross elasticity of demand for the
two. What is the nature of their relationship?
12) A firm is able to sell 500 units of its product. Its present outlay on advertising is Rs.
2.50 lakh. The promotional elasticity for the firm’s product is 1.65. How much
additional expenditure needs to be done on advertising, if it wishes to increase its sales
to 850 units?

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