10 IN DWI DUAL ASSIG'N M EN T" 2 This assignment is an INDIVIDUAL assignment. For all questions, clearly show all your calculations to substantiate your reasoning. Please round off to 2 decimal places, e.g. 0.2689256 = 0.27. TOTAL: 50 MARKS Question 1 (25 marks) Use the hypothetical information in the table below to answer the questions that follow. 28000 14000 \"1-\" 4000 \"-1-\" 1.1 Calculate, interpret, and classify the price elasticity of demand for salt if the price of a salt increases from R15 to R25. (6) 1.2 Given your answer in 1.1, do you recommend that the firm decrease the price of salt by 20% in order to increase total revenue? Explain fully using the necessary calculations. (3) 1.3 Suppose the firm wishes to increase the sales of salt by 18%. Given the Ed-coefficient calculated in question 1.1 above, to achieve this goal, by how much should the firm change the price of salt? (1) 1.4 Calculate, interpret and classify the income elasticity of demand for salt, if income increases from R4000 to R28000. (7) 1.5 Calculate, interpret and classify the cross-elasticity of demand between salt and pepper, if the price of pepper decreases from R30 to R10. (6) 11 1.6 Suppose the firm is considering lowering the price of pepper by 25% next month. Make use of your cross-elasticity coefficient in question 1.5, to calculate both the percentage- and unit change in the quantity demanded of salt assuming that it sold a total of 40 units of salt this month. (2) Question 2 (17 marks) 2.1 If the price of Good A decrease by 6%, the Qd of Good A increases by 3%, while the ad of Good B decrease by 18%. Calculate and classify both the price-elasticity and cross-elasticity coefficient. (6) 2.2 Compare and judge the products listed below to decide which product you think has a more inelastic demand. Provide reasons for your answer. 2.2.1 Breakfast cereal Kellogg '5 Corn Flakes (2) 2.2.2 Dental bleaching (teeth whitening) Emergency medical procedures. (2) (2) 2.2.3 Caribbean cruise Q a box of matches. 2.3 Assume that a 25% decrease in income results in a 10% increase in the quantity demanded of Good X in April. 2.3.1 Calculate and classify the income-elasticity coefficient of Good X for April. (3) 2.3.2 Suppose that the firm expects consumer income to fall by 5% in May. Make use of your income- elasticity coefficient, to calculate both the percentage- and unit change in the quantity demanded of Good X for May, assuming that consumers bought 8000 units of Good X in April. (2) Question 3 (3 marks) During the current COVID-19 pandemic, we read a lot about firms charging excessive prices for essential items such as face masks and hand sanitizer. Make use of the concelgt of elasticity to iusti why (i) consumers were willing to pay the high price and (ii) from 3 firms' perspective, it was rational behaviour to increase the price. 12 Question 4 [5 marks[ Read the statement made by each ofthe following individuals and provide a brief explanation as to why their statements are incorrect (false). 4.1 4.2 4.3 4.4 Susan says: "If the price of good X increase and the demand for good X is elastic, then the percentage increase in price is greater than the percentage decrease in quantity demanded, and total revenue increases\" (1) John says: "If the income elasticity of demand for a good is less than zero, the good is classified as a necessity." (1) Tumi says: "Economists estimated that the Ec-coefficient between bacon and eggs is equal to - 1.2 and the Ey-coefficient for eggs is equal to 0.8. This means that bacon and eggs are substitutes and eggs is a luxury good." (2) Hussain says: "If a 20% reduction in the price of a commodity results in a 5% increase in the quantity demanded, demand is said to be elastic." (1) 66-6