Q.3.1 A store that sells maize meal discovers that when the price of 1kg maize meal Is R24 per kilogram, the quantity demanded is 306 kgs per week. When the price decreases to R21 per kg, then the sales increase to 340 kgs per week. Use this information to answer questions Q.3.1.1 and Q.3.1.2 below. Q.3.1.1 Determine the price elasticity of maize meal using the Arc method. (5) Q.3.1.2 Discuss the relationship between the price elasticity of maize meal and the total revenue the store received from the sales. Advise the store on an appropriate pricing strategy. (7)
These questions require application of economic theory relating to elasticity of
supply. All calculations must be shown in full. Answer ALL the questions.
Q.3.1 A store that sells maize meal discovers that when the
R24 per kilogram, the quantity demanded is 306 kgs per week. When the price
decreases to R21 per kg, then the sales increase to 340 kgs per week. Use this
information to answer questions Q.3.1.1 and Q.3.1.2 below.
Q.3.1.1 Determine the price elasticity of maize meal using the Arc method. (5)
Q.3.1.2 Discuss the relationship between the price elasticity of maize meal
and the total revenue the store received from the sales. Advise the
store on an appropriate pricing strategy.
(7)
Q.3.2 The store selling maize meal makes a further discovery, when the price of rice
changes from R30 per kg to R26 per kg, then the quantity of rice demanded
decreases from 1360 kg per month to 1238 kg per month. Use this information
to answer Q.3.2.1 and Q.3.2.2 below.
Q.3.2.1 Use the point method to calculate the cross elasticity of demand for
these products.
(5)
Q.3.2.2 Comment on the significance of your solution in Q.3.2.1. (2)
Q.3.3 Identify three factors that are likely to affect the price elasticity of supply for
rice. Clearly indicate the impact that each factor will have on the price
elasticity.
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