Question

a. Regional Maritime University wants to increase her profit margin by 20% by increasing the school fees by 10%. With your knowledge in elasticity, will Regional Maritime University be able to achieve this target? Explain your answer

b. Nestle Ghana Limited wants to know if they raise the price of Milo by ¢0.10/tin, will their profit margin go down, go up or remain unchanged? Explain your answer

c. The government of Ghana wants to cut down rice importation by 50%. It wants to do this by increasing the import duty by 40%. With your knowledge in elasticity, will government be able to achieve this target? Explain your answer.

c. The government of Ghana wants to cut down rice importation by 50%. It wants to do this by increasing the import duty by 40%. With your knowledge in elasticity, will government be able to achieve this target? Explain your answer.

Answer 1

a) If %change in quantity demanded < %change in price, demand is inelastic or we can say consumers does not reduce their demand by much. As people consider education as necessary good, they will not reduce their quantity demanded by much when price of it rises. Thus it can help in generating more revenue.

b) Demand of chocolate is luxury which can be reduced when price of it rises or we can say that %change in quantity demanded > %change in price, demand is elastic. Rise in price will reduce its quantity demanded by much more than rise in price which will reduce profit margin.

c) Raising tariff by 40% will raise domestic price of rice. Rice is the second most consumed food in Ghana. Rise in price of rice will not reduce its quantity demanded by much because of inelastic demand. As quantity demanded does not fall, import will not fall.