Question

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburger is _ so supply is _

a. 2/3; elastic
b. 1.4; elastic
c. 2/3; inelastic
d. 1.4; inelastic

Answer 1

The price elasticity of supply for hamburgers when the price increases from $3 to $4, with an increase in quantity supplied from 100 to 150 units, is 1.5. The closest given option is 1.4, which indicates that the supply is elastic.

Step-by-step explanation:

The student is asking about the price elasticity of supply for hamburgers when the price rises from $3 to $4 and the quantity supplied increases from 100 units to 150 units. To calculate the elasticity, we use the formula:

Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)

First, we calculate the percentage change in quantity supplied: (150 - 100) / 100 × 100 = 50%. Next, we calculate the percentage change in price: (4 - 3) / 3 × 100 = 33.33%. Using these values, the price elasticity of supply is 50% / 33.33% = 1.5.

Thus, the price elasticity of supply for hamburgers is 1.5, which means option b. 1.4; elastic is closest to our calculated value, and the supply is considered elastic because the elasticity value is greater than 1.