Question

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is: a. 0.60. b. 1.66. c. 1.50. d. 0.66.

Answer 1

a. 0.60

Step-by-step explanation:

The formula to compute the price elasticity of supply using the midpoint formula is shown below:

= (change in quantity supplied ÷ average of quantity supplied) ÷ (percentage change in price ÷ average of price)

where,

Change in quantity supplied is

= Q2 - Q1

= 30 - 20

= 10

And, average of quantity supplied is

= (30 + 20) ÷ 2

= 25

Change in price is

= P2 - P1

= $20 - $10

= $10

And, average of price is

= ($20 + $10) ÷ 2

= 15

So, after solving this, the price elasticity of supply is 0.60