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 1.66.
B 1.50.
C 0.66.
D 0.60.

Answer 1

D 0.60.

Step-by-step explanation:

Elasticity of Supply measure the responsiveness of supply against the change in price of the product.

Using mid point method

Change in Quantity = ( S2 - S1 ) / [ ( S2 + S1 )/2 ]

Change in Quantity = ( 30 - 20 ) / [ ( 30 + 20 )/2 ]

Change in Quantity = 10 / 25

Change in Quantity = 0.4

Change in price = ( P2 - P1 ) / [ ( P2 + P1 )/2 ]

Change in price = ( $20 - $10 ) / [ ( $20 + $10 )/2 ]

Change in price = $10 / $15

Change in price = 0.67

Elasticity of Supply = Change in Quantity / Change in Price

Elasticity of Supply = 0.4 / 0.67

Elasticity of Supply = 0.597 = 0.60