Question

Consider the market for a natural resource, where the price is initially $22,000 per ton and 22,000 thousand tons are supplied. Suppose the price of the resource falls to $20,000 per ton, at which price the market supplies 21,000 thousand tons.

What is the price elasticity of supply between these prices? Using the midpoint formula, the price elasticity of supply is ____ (Enter your response as a real number rounded to two decimal places.)

Answer 1

Using the midpoint formula, the price elasticity of supply for a natural resource when the price drops from $22,000 to $20,000 per ton and the quantity supplied falls from 22,000 to 21,000 thousand tons is approximately 0.49.

Step-by-step explanation:

To calculate the price elasticity of supply using the midpoint formula, we follow these steps:

1. Calculate the percentage change in quantity supplied:
   ((new quantity - original quantity) / midpoint of quantities) × 100.
2. Calculate the percentage change in price:
   ((new price - original price) / midpoint of prices) × 100.
3. Divide the percentage change in quantity supplied by the percentage change in price to find the elasticity.

Applying these steps to the given figures:

• Original quantity supplied = 22,000 thousand tons
• New quantity supplied = 21,000 thousand tons
• Original price = $22,000 per ton
• New price = $20,000 per ton

The midpoint of quantities = (22,000 + 21,000) / 2 = 21,500 thousand tons

The midpoint of prices = ($22,000 + $20,000) / 2 = $21,000 per ton

Percentage change in quantity supplied = ((21,000 - 22,000) / 21,500) × 100 = -4.65%

Percentage change in price = (($20,000 - $22,000) / $21,000) × 100 = -9.52%

Therefore, the price elasticity of supply = -4.65% / -9.52% ≈ 0.49 (rounded to two decimal places).

The price elasticity of supply between these prices using the midpoint formula is approximately 0.49.