Question

Did Starbucks start a pumpkin​ boom? Ever since Starbucks introduced its famed pumpkin spice latte about a decade​ ago, pumpkin sales have skyrocketed. ​Source: CNNMoney, October​ 1, 2014 The price of pumpkin increased from​ $286 per ton in 2000 to​ $732 per ton in 2014​ (both prices in 2014​ dollars) and the quantity produced increased from​ 423,000 tons in 2000 to​ 657,150 tons in 2014. Calculate the price elasticity of supply of​ pumpkin: Is its supply​ elastic?

Answer 1

inelastic

Step-by-step explanation:

Supply price elasticity aims to measure the supply sensitivity of a good in the face of price changes. The calculation consists of dividing the percentage change in quantity (1) by the percentage change in price (2).

If the calculated elasticity is greater than 1, we say that the supply of the good is elastic - price sensitive.

If the elasticity is between 0 and 1, we say it is inelastic - little sensitive to percentage change.

(1) ΔQ/Q= ( 423,000 - 657,150) / 423,000 = -0,55

(2) ΔP/P = (286 - 732) /286 = -1,55

(3) (ΔQ/Q)/(ΔP/P) = -0,55/-1,55 = 0,35

In the case in question, the elasticity found was 0.35, which is less than 1, so the supply of squash is inelastic to the price.