Type 1: Ordinary elasticity
-If the demand for _____ is elastic/inelastic,
-the % increase/decrease in P will be smaller/higher than the % decrease/increase in quantity (demanded).
The following is an extract from a local newspaper article.
The MTR corporation raised the railway fares by 5.4% in 2012. This increase was based on the Fare Adjustment Mechanism set by the government. To respond to the discontent of the public over the fare increase, the Corporation introduced a concessionary measure ‘’Ride 10 Get 1 Free’’.
With the aid of a diagram, explain under what condition the total expenditure of passengers on the MTR will increase because of the rise in fare. (5 marks)
Indicate in diagram
-correction position of gain and loss (1)
If the demand for MTR service is inelastic, (1)
the % increase in fare will be higher than the percentage decrease in the number of trips, (so the total expenditure will increase). (2)
Type 2: 有shifting嘅elasticity
-Basically the same as ordinary elasticity, but changes in demand/supply/P/Q should also be stated.
In recent years, the price of textbooks has become a public concern.
The price of paper has increased sharply in recent years. With the aid of a diagram, explain under what condition publishers’ total revenue from the sale of textbooks would increase. (8 marks)
Indicate in diagram
-supply curve shifts to the left (1)
-Q drops and P increases (1)
-loss in total revenue＜gain in total revenue (2)
The supply of textbooks decreases because the cost of production has increased. (1)
The price increases and the quantity transacted/demanded decreases. (1)
If the demand is inelastic, (1)
The % decrease in quantity (demanded) is smaller than the % increase in price. (1)
Type 3c: Factor類elasticity
-Basically the same as ordinary elasticity, but a factor leading to elastic/inelastic demand/supply are to be stated.
During peak flu seasons, there is not enough medical staff in public hospitals in Hong Kong.
An economist stated, ‘Even if the government sharply increases the wage rates of the medical staff, it is still difficult to relieve the problem.’ Justify this statement using the concept of elasticity of supply/demand. (3 marks)
The supply of medical staff may be inelastic because (1)
They require special training and qualification. (1)
(Even if the government raises their wage rates sharply,) the % increase in the quantity supplied would still be smaller than the % increase in their wage rates. (1)
DSE Econ 文章系列
- 經濟表現的量度 Measure of economic performance
- 國民收入決定及價格水平 National income determination and price level
- 貨幣與銀行 Money and Banking
- 宏觀經濟問題和政策 Macroeconomic Problems and policies
- 國際貿易和金融 International Trade and Finance