Question

Consider two markets: the market for cat food and the market for dog food. The initial equilibrium for both markets is the same, the equilibrium price is $5.50 , and the equilibrium quantity is 39.0 . When the price is $7.75 , the quantity supplied of cat food is 71.0 and the quantity supplied of dog food is 101.0 . For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for dog food. Please round to two decimal places. Supply in the market for cat food is:

Answer 1

Given that,

Equilibrium price = $5.50

Equilibrium quantity = 39.0

`Elasticity\ of\ supply\ for\ dog\ food=((Change\ in\ quantity)/(average\ quantity) )/((change\ in\ price)/(average\ price) )`

`Elasticity\ of\ supply\ for\ dog\ food=((101-39)/(101+39) )/((7.75-5.50)/(7.75+5.50))`

=
`(0.44)/(0.1698)`

= 2.5912

(b) For same % Increase in price, increase in quantity supplied for cat food is less than the increase in quantity supplied of dog food, therefore Cat food is less elastic than dog food.