1. Why does the quantity of salt demanded tend to be unresponsive to changes in its price?
2. Why is the quantity of education demanded in private universities much more responsive
than salt is to changes in price?
3. To get the market demand curve for a product, why do we add individual demand curves
horizontally rather than vertically?
4. The market for lemon has 10 potential consumers, each having an individual demand curve
P = 101 – 10Qi, where P is price in dollars per cup and Qi is the number of cups demanded
per week by the ith consumer. Find the market demand curve using algebra. Draw an
individual demand curve and the market demand curve. What is the quantity demanded by
each consumer and in the market as a whole when lemon is priced at P = $1/cup?
5. The demand for tickets to an Ethiopian Camparada film is given by D(p)= 200,000-
10,000p, where p is the price of tickets.If the price of tickets is 12 birr, calculate price
elasticity of demand for tickets and draw the demand curve
6. Given market demand Qd = 50 – P, and market supply P = Qs + 5
A) Find the market equilibrium price and quantity?
B) What would be the state of the market if market price was fixed at Birr 25 per unit?
C) Calculate and interpret price elasticity of demand at the equilibrium point.
39
7. Based on the following table which indicates expenditure of the household on a
commodity, answer the questions that follow ( The price of the good is Br.10 )
Income
( Br. / month)
Quantity Demanded
( units / month )
10,000 50
20,000 60
30,000 70
40,000 80
50,000 90
A) Calculate income elasticity of demand, if income increases from Br.10, 000 to Br.
20,000 and if income increases from Br.40, 000 to Br. 50,000.
B) Is this a normal or an inferior or a luxury good? Justify.
C) Does the proportion of household income spent on this good increase or decrease as
income increases? .Why?
8. When price of tea in local café rises from Br. 10 to 15 per cup, demand for coffee rises
from 3000 cups to 5000 cups a day despite no change in coffee prices.
A) Determine cross price elasticity.
B) Based on the result, what kind of relation exists between the two goods?