a) State the definitions of price elasticity (of demand), income elasticity, and cross-price elasticity. What do these definitions mean in words?
b) In the graph in Figure E.2.1, D1 is the demand for a certain good at different prices. Calculate the price elasticity of the good at point A and point B. Do you get the same answer in both points? Why or why not?
c) If the slope of D1 would change, so that demand becomes a horizontal line through point A, what would the price elasticity in point A be?
d) If income increases by 10 %, D1 shifts to D2. Calculate an approximate value for the income elasticity at point A.
e) Suppose the price of the good is 5, and that is increases by 5%. As a consequence, the demand of another good decreases by 20 %. Calculate the cross-price elasticity for the other good. Is the other good a substitute good or a complementary good to the first one?
