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Mohd Lutfi
Principle of Ecionomy

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1)Cross elasticity of demand is define as the percentage or rate of response of a product quantity demand when its substitute goods increase its price. When the price of tea increase, consumer will shift it demand towards it substitute, the coffee, hence the demand of coffee will increase. Therefore substitute have a positive cross elasticity of demand. The complementary goods is where one of its price reduce, the demand for its pair or partner also will increase. This is usually can be seen with petrol and car. When the price of petrol decrease, the demand of car will increase as the petrol will now coast much cheaper.

2)The elasticity of demand will tell the supplier how much their total revenue will change if their price changes. The total revenue is calculated as total quantity sold times price of goods. For inelastic demand, an increase in price will result the decrease in quantity demand and thus result in decreasing in the total revenue. While elastic demand, an increase in price of goods will cause to decrease in the total revenue.

3)Price elasticity of supply measured the response in quantity supply due to changes in price. One of the factors that influence the elasticity of supply is the resource. The more scarce resources that a firm use to produce a good and services, the harder the firm to find to produce the good and services. Hence the firm will increase the price and it will affect the elasticity of supply.

4)During an economic downturn, people tend to eat at home due to increase in price for eating out. Due to the increase of price, the rate of response was huge and thus people decline eating at outside thus demand will decrease and the total revenue will decrease. It can be seen in elastic demand where an increase in price reduce greatly the demand of product and services and cause the total revenue to decrease in a very large amount.