ECO 101 Quiz

Name: Md.
Thasin Hassan Shifat Faculty: Nabeel Iqbal

ID : 2031495630 Lecturer
Section: 10 Department of Economics
Course: ECO101 North South University
Quiz - 2
Bachelor of Business
Administration (BBA)
North South University
Ans to the question No:1
(A)
As per the question above given information we found the price elasticity of demand of Noodles
Is |Ed|=|-1.7|=1.7
Price elasticity of demand symbol measures the responsiveness of quantity demanded (Qd) to
change in price (P). we found the price elasticity of demand of Noodles is |Ed|=1.7. Now we can
obtain (extract) information from this number (i.e., interpret the number):
P↑ 1% then Qd 0.1% ↓ (C.P.)
P↓1% then Qd 1.7% ↑
If P(price) decreases By 1% then Qd (quantity demanded) increases by 1.7% (assuming Ceteris
paribus). Here Qd responds to change in price. In here we noticed large % changes in Qd.
In here we can say, Generally, if |Ed|>1, then we assume the demand of the product is elastic. In
this case (Ed>1) 1.7>1 quantity demanded changes proportionately more than price changes,
%∆Qd > %∆P. that’s why Noodles elastic demand.
On the other hand, price elasticity of demand of rice is |Ed |=|-0.1|=0.1. when we talk about Rice
product, we found price elasticity of demand of rice is |Ed|=0.1. now we can obtain (exact)
information from this number. If price (P) increases by 1% then Qd (Quantity demanded) decreases
by 0.6%. we also noticed small % changes in Qd.
So, in here |Ed|<1 (0.6<1). That’s why we can say the demand of the rice is inelastic. So. In this
case quantity demanded (Qd) changes proportionately less than price(P) changes, %∆Qd < %∆P.
That’s why Rice inelastic demand.
(B)
There are many reasons that the price elasticity of demand of Rice and Noodles so different from
one another. One reason is the determinants of price elasticity of demand. Now we discuss about
more on these determinants.
1. Number of substitutes: If a good has many substitutes then price elasticity of demand
|Ed| will be more as compared to a good which has fewer substitutes. In this case we see
Noodles has many substitutes (like pasta, bread etc.) rather than rice. Since rice is a
necessity product for our society. That’s why people find very less substitutes for rice. On
the other hand, Noodles has many substitutes so that buyers can easily shift to different
product like pasta when the price of Noodles Increases In the market. Hence, Qd decreases
by a larger % and hence value of Ed will be larger (Demand more Elastic)
2. Necessities Versus Luxuries: if a good is a necessity product (Example: Rice) then

price elasticity of demand |Ed| will be less as compared to a good which is a luxury product
(Example: Noodles). If the price of a necessity product increases then quantity demanded
(Qd) will fall by a smaller %. Hence, price elasticity of demand |Ed| is smaller and demand
will be less elastic (Inelastic).
3. Time: As more time passes after the price change, the higher will be the price elasticity
of demand |Ed|. Since consumer can find others substitutes, change their preferences,
lifestyles, lifestyle and eating habit.
Example: if the price of Noodles increases suddenly, then buyer can not reduce
consumption of Noodles drastically within a period of short time and hence demand for
Noodles is become most likely to be Inelastic. However, as more time passes people might
be quite Noodles and its quantity demanded falls by a larger amount and hence the demand
of the product becomes more elastic with time.
Rice Noodles
1. P↑ 1% then Qd 0.1% ↓ (C.P.) 1. P↓1% then Qd 1.7% ↑ (C.P.)
2. Small percentage% Changes in Qd 2. Large percentage% changes in Qd
3. It’s a necessity product 3. Luxury Product
4. Inelastic demand 4. Elastic demand
5. Few substitutes 5. More Substitutes
After all of the above discussion consider we can conclude that price elasticity of demand
of Rice and Noodles so different from one another.
(C)
As per question given information, we obtain the government of country Z needs a significant
amount of fund to tackle the current coronavirus situation. To obtain the fund, they have decided
to impose a $2 dollar Tax on either the sellers of Noodles or the sellers of rice.
So, as the economic advisor of country Z, I would like to advice the government of country Z to
impose a $2 tax on the Noodles product to obtain the fund to tackle the coronavirus situation. Since
rice is a necessity product for all walk of people in country Z, so, that’s why I can not advice to
impose a $2 dollar tax on this pandemic situation. It can be create many social problem for middle
class or lower class family in the country Z. Since Rice is a necessity product so it needs to be
affordable among all classes people in the country Z. otherwise whole country will facing starving
problem along with price hike. So, I have to consider their problem as well when I can take my
decisions.
On the other hand, Noodles is a less necessity product. It can be considered as luxury product.
Higher class people most likely used to of this product on their daily basis because they can afford
this luxury product along with their necessity product. But in this case, we saw many lower income
families didn’t afford to buy this product on their daily basis.
So, as a economic advisor of Country Z, I would like to impose a Tax $2 on this product (Noodles).
Now I have to make a model of demand & supply.
Step1: First I need to understand & explain that which product I should impose a tax $2 dollar.
Step 2: I have to identifying the important factor. Example: family income
Step 3: Then I have to collect data from the given information.
Step 4: Lastly, I have to analyze the relationship between variables (Using Graph)
From the graph I obtain all of the information that given below:
1. P↑ then Qd ↓large% (C.P.)

2. Elastic demand
3. Demand Curve flat
4. Before Tax:
Consumer Buy Noodles $10 (Per unit)
Sellers Sell Noodles $10 (Per unit)
5. After Tax:
Consumer Buy Noodles 10.5
(Buyers have to pay $.5 more)
Sellers Sell Noodles = (10.5-2)
= 8.5
So. Sellers receive 1.5 less price than the regular price.
6. After tax sellers gradually try to decrease the production of Noodles in the country Z.
As per given question information, we see Adam is a fitness enthusiast, who wants to apply the
concept of elasticity, who wants to apply the concept elasticity to study how the the amount of
exercise affects his weight.
In microeconomics, the concept of elasticity is applied in situations where we are interested to
study the responsiveness of a (dependent) variable, assuming ceteris paribus (C.P.).
According to the elasticity concept Formula: %∆ dependent variable / %∆ independent variable
In this we need to assume independent variable would be Adam’s amount of exercise (AE) and
dependent variable would be Adam’s wights (w)
Now, if we assume from law of demand perspective it states:
If amounts of exercise (AE) ↑ then Weights (w) ↓
And if Amount of Exercise (AE)↓ then Weights (W) ↑
In here, quantity demanded (Qd) considered to be weights.
Now, we can derived the formula according to our information:
|Ex|= | %∆ Amounts of Exercise / %∆ Qd (weights) |
In this new formula |Ex| represents Exercise Elasticity Of demand that measures the
responsiveness of quantity demanded (weights) to changes in Adam’s amounts of exercise. Here
Qd (weights) responds to changes in AE (amount of Exercise).
(A)
As per question given information let’s say we want to apply the concept of elasticity to study how
the tuition fee at NSU affects the number of students who want to enroll and study at NSU.
In this situation price elasticity of demand concept can be applied.
In price elasticity of demand concept, we measure the responsiveness of quantity demanded (Qd)
to changes in price (assuming Ceteris Paribus). According to low of demand we can states if price
increase then quantity demanded will be decrease and if price increase then quantity demanded
(Qd) will be increasing.
In this case, we assume that NSU has limited seats for all applicants. Now let’s say NSU wants to
apply the price elasticity of demand concept on their enrollment/admission procedure.
So, according to the law of demand states, Now NSU wants to increase their tuition fee. Right
now, at this moment we can noticed a drastically changes happen in their enrollment procedure.
Many of the students who belong from middle or lower class income families will never going to
apply at NSU because of high tuition fees. Maybe they can not afford. In this case when NSU
authority increases their tuition fee (price) then quantity demanded (applicants) will decreases
gradually. This concept indicates the price elasticity of demand.
On the other hand, if NSU authority decrease their tuition fee (price) then we can see the number
of students who want to enroll and study at NSU Qd (quantity demand) will increase.
(B)
Income elasticity of demand (Ey) is a measure of the responsiveness of quantity demanded to

change in income, |Ey| = |%∆ Qd / %∆ income|
Now as per question given information, in case of a Bangladeshi household, the income elasticity
of demand for vacations can be either positive or neutral (0) in different special cases.
In most of the cases we saw if a family income (Y) increases then the demand increases as well.
So, if a household earn a good income (Y) then they try to spend some money for their family
vacations or tours. So, in this case we noticed income(Y) elasticity of demand has positive/ direct
relation hence Ey>0.
Now if we talk about special case, many of us already experienced that some typical Bangladeshi
families don’t like to spend their money to go for a travel or vacations. If their income (Y) increases
but in the mean time we noticed their demand will be decreases. They like to savings their money
rather than go for a vacation. So, in this special case income elasticity of demand has
negative/inverse relation. Hence Ey<0
In other, special case we experienced that many households in Bangladesh they are not interested
in travelling or vacations. Since their income doesn’t change that’s why their demand for vacations
doesn’t change at all. In this case Ey=0
So, we can say, in case of a Bangladeshi household, the income elasticity of demand for vacation
can be either positive, negative or zero.

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Name: Md.

Thasin Hassan Shifat Faculty: Nabeel Iqbal

2. Necessities Versus Luxuries: if a good is a necessity product (Example: Rice) then

1. P↑ then Qd ↓large% (C.P.)

Income elasticity of demand (Ey) is a measure of the responsiveness of quantity demanded to

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