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Calculate the price elasticity of demand.

Suppose the demand for shoelace eyelets is represented by the equation:

D = 60-p, where p is price, and that supply is represented by the equation S=10+2p-w, where w is the wage rate for eyelet factory workers.

a) Assuming the market wage rate is $10/hour, what is the equilibrium price? What is the equilibrium quantity?

b) What are the equilibrium price and quantity if the wage increases to $16/hr?

c) Use the changes in price and quantity demanded above to calculate the price elasticity of demand. Interpret your result (i.e. what does the elasticity you calculate mean?).


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