Question

Suppose that when the price of coffee beans goes from $1 to $1.30 per pound, production increases from 72 million bags of coffee beans per year to 100 million bags. Calculate the price elasticity of supply using the mid-point formula. round your answer to two decimal places. the price elasticity of supply is: []

Answer 1

The price elasticity of supply measures how responsive the quantity supplied is to changes in price. Using the mid-point formula, the price elasticity of supply in this case is approximately 0.33.

Step-by-step explanation:

The price elasticity of supply can be calculated using the midpoint formula, which takes into account the percentage change in quantity supplied and the percentage change in price. The formula is:

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

In this case, the change in quantity supplied is 100 million bags - 72 million bags = 28 million bags, and the average quantity supplied is (100 million bags + 72 million bags) / 2 = 86 million bags. The change in price is $1.30 - $1 = $0.30, and the average price is ($1.30 + $1) / 2 = $1.15.

Using these values in the formula:

Price Elasticity of Supply = (28 million bags / 86 million bags) / ($0.30 / $1.15)

Price Elasticity of Supply ≈ 0.33