SOLUTIONS TO SELF-CHECK QUESTIONS

4.1 Price Elasticity of Demand and Price Elasticity of Supply

1. Elasticity is calculated by dividing the percent change in quantity over the percent change in price. E = %∆Q/%∆P
2. The price elasticity of demand is the extent to which quantity demanded responds to a change in price.
3. The price elasticity of supply is the extent to which quantity supplied responds to a change in price.

4.2 Polar Cases of Elasticity and Constant Elasticity

1. A vertical line, since quantity will not change at all in response to a change in price.
2. A horizontal line, since as much of the product as desired can be sold or bought at a single price.

4.3 Elasticity and Pricing

1. On quantity.
2. On price.
3. On quantity.
4. On price.

4.4 Elasticity in Areas Other Than Price

1. The percent change in quantity demanded over the percent change in income. E = %∆Q/%∆I
2. The percent change in quantity demanded over the percent change in the price of the substitute or complement good. E = %∆Q/%∆Ps or %∆Q/%∆Pc
3. The percent change in the quantity of labor supplied over the percent change i the wage rate. E = %∆Q/%∆W
4. The percent change in savings over the percent change in interest rates. E = %∆S/%∆Ir