Question

In a particular market, when the price of televisions is $800, the quantity supplied of televisions is 400 . When the price of televisions is $1200, the quantity supplied of televisions is 1200 . Using the midpoint formula, what is the price elasticity of supply over this region for televisions in this market?

a. 1
b. 1.5
c. 4
d. 2.5

Answer 1

The price elasticity of supply for televisions in this market, calculated using the midpoint formula with given changes in price and quantity, is 2.5, indicating a relatively elastic supply response to price changes.

Step-by-step explanation:

The student has asked how to calculate the price elasticity of supply for televisions using the midpoint formula, given a change in price from $800 to $1200 and a change in quantity supplied from 400 to 1200. The price elasticity of supply can be calculated as the percentage change in quantity supplied divided by the percentage change in price, using the midpoint formula for elasticity which provides a more accurate measure because it uses the average percentage change in both quantity and price.

First, calculate the average price and quantity: (800 + 1200)/2 = $1000 and (400 + 1200)/2 = 800. Then, calculate the changes: ($1200 - $800)/$1000 = 0.4 and (1200 - 400)/800 = 1. Finally, divide the percentage change in quantity by the percentage change in price to get the elasticity: 1 / 0.4 = 2.5.