Question

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply. 1. 1.22 2. 1.0 3. 0.82 4. 0.07

Answer 1

1. 1.22

Step-by-step explanation:

P = Price of money clip

S = Supply of money clip

P1 = 0.75

P2 = 0.90

S1 = 8,000

S2 = 10,000

Mid point Formula = [ ( S2- S1 ) / ( P2- P1 ) ] / [ ( ( S2+ S1 ) / 2) / ( ( P2 + P1 )/2 ) ]

Price Elasticity of Supply = [ ( 10,000- 8,000 ) / ( 0.90- 0.75 ) ] / [ ( ( 10,000+ 8,000 ) / 2) / ( ( 0.90 + 0.75 )/2 ) ]

Price Elasticity of Supply = (2,000 / 0.15) / (9,000 / 0.825)

Price Elasticity of Supply = 13,333.33 / 10909.09

Price Elasticity of Supply = 1.22