Question

On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about _________.a. 0.22. b. 0.53. c. 1.00. d. 1.89.

Answer 1

Price elasticity of supply is 1.89

Step-by-step explanation:

Using the midpoint method, the price elasticity of supply between two points is given by the formula:

Price elasticity of supply =
`((Q_(2)-Q_(1))/(Q_(2)+Q_(1))/2 )/((P_(2)-P_(1))/(P_(2)+P_(1))/2)`

Where:

Q₂ is the quantity supplied at point 2

Q₁ is the quantity supplied at point

P₂ is the price at point 2

P₁ is the price at point 1

Given:

Q₂ = 250; Q₁ = 200

P₂ = $4.50; P₁ = $4.0

Price elasticity of supply =
`((Q_(2)-Q_(1))/(Q_(2)+Q_(1))/2 )/((P_(2)-P_(1))/(P_(2)+P_(1))/2)`

Substituting values we get

Price elasticity of supply =
`((250-200)/(250+200)/2 )/((4.5-4.0)/(4.5+4.0)/2)`

Price elasticity of supply =
`(50/450/2 )/(0.5/8.5/2)`

Price elasticity of supply =
`(50/225 )/(0.5/4.25)`

Price elasticity of supply =
`(0.2222 )/(0.1176)`

Price elasticity of supply = 1.89

Since Price elasticity of supply = 1.89 > 1, the supply is elastic