Question

2(a)(i) Identify the curves labelled X, Y and Z.
(ii) State the direction of change in price and quantity with the introduction of subsidy.
(b) Calculate the total revenue of the producers: (i) before the introduction of subsidy; (ii) after the introduction of subsidy.
(c) Calculate the percentage increase or decrease in the total revenue of the producers with the introduction of subsidy.
(d) If the quantity demanded of maize increases from 20 to 40 bags as a result of a fall in price from $15 to $10, calculate the price elasticity of demand.
(e) State the type of elasticity of demand in 2(d).

Accepted Answer

(a)(i) X = Demand curve; Y = Old/Original Initial supply curve/supply curve before subsidy/S; Z = New supply curve/supply curve after subsidy/final supply curve/S1

(ii) Price decreases from $15 to $10. Quantity increases from 20 bags to 40 bags.

(b)(i) Total revenue before the subsidy: TR = P × Q = $15 × 20 = $300.00
(ii) Total revenue after the subsidy: TR = P × Q = $10 × 40 = $400.00

(c) Percentage change in total revenue = [(400−300)/300] × 100 = (100/300) × 100 = 33.33%
% increase in total revenue is 33.3%

(d) % change in quantity demanded = [(40−20)/20] × 100 = 100%
%Δ in price = [(10−15)/15] × 100 = (−5/15) × 100 = −33.3%
Price elasticity of demand = 100%/33.3% = 3.0

(e) Demand is elastic (since the coefficient of price elasticity, 3.0, is greater than 1).

WAEC Economics 2022 Theory — Question 2

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