Question

Suppose the price of tires increases from ​$70 per tire to ​$80. In​ response, the quantity of tires supplied increases from 35 comma 000 to 45 comma 000 tires. What is the price elasticity of supply for​ tires?

Answer 1

1.875

Step-by-step explanation:

Data provided in the question:

Initial price, P₁ = $70

Final price, P₂ = $80

Initial supply quantity = $35,000

Final supply quantity = $45,000

Now,

Price elasticity of supply for​ tires =
`(((Q_2-Q_1)/((Q_2+Q_1)/(2))))/(((P_2-P_1)/((P_2+P_1)/(2))))`

on substituting the respective values, we get

Price elasticity of supply for​ tires =
`(((45,000-35,000)/((45,000+35,000)/(2))))/(((80-70)/((80+70)/(2))))`

or

Price elasticity of supply for​ tires =
`((10,000)/((80,000)/(2)))/((10)/((150)/(2)))`

or

Price elasticity of supply for​ tires = [ 0.25 ÷ 0.1333 ]

= 1.875