SOLUTIONS TO SELF-CHECK QUESTIONS
4.1 Price Elasticity of Demand and Price Elasticity of Supply
- Elasticity is calculated by dividing the percent change in quantity over the percent change in price. E = %∆Q/%∆P
- The price elasticity of demand is the extent to which quantity demanded responds to a change in price.
- 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
- A vertical line, since quantity will not change at all in response to a change in price.
- 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
- On quantity.
- On price.
- On quantity.
- On price.
4.4 Elasticity in Areas Other Than Price
- The percent change in quantity demanded over the percent change in income. E = %∆Q/%∆I
- 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
- The percent change in the quantity of labor supplied over the percent change i the wage rate. E = %∆Q/%∆W
- The percent change in savings over the percent change in interest rates. E = %∆S/%∆Ir