In January the price of widgets was $2.00,and Wendy's Widgets produced 80 widgets.In February the price of widgets was $2.50,and Wendy's Widgets produced 110 widgets.In March the price of widgets was $3.00,and Wendy's Widgets produced 140 widgets.The price elasticity of supply of Wendy's Widgets was
A) 0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.
B) 0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.
C) 1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
D) 1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

Question

Quizplus · Accepted Answer

To calculate the price elasticity of supply, we use the formula:

% change in quantity supplied / % change in price

Price increased from $2.00 to $2.50, which is a 25% increase:

% change in price = ((2.5 - 2.0) / 2.0) x 100% = 25%

Quantity supplied increased from 80 to 110 widgets, which is a 37.5% increase:

% change in quantity supplied = ((110 - 80) / 80) x 100% = 37.5%

Using these values in the formula gives us:

% change in quantity supplied / % change in price = 37.5 / 25 = 1.5

Therefore, the price elasticity of supply for this price increase is 1.5.

Price increased from $2.50 to $3.00, which is a 20% increase:

% change in price = ((3.0 - 2.5) / 2.5) x 100% = 20%

Quantity supplied increased from 110 to 140 widgets, which is a 27.3% increase:

% change in quantity supplied = ((140 - 110) / 110) x 100% = 27.3%

Using these values in the formula gives us:

% change in quantity supplied / % change in price = 27.3 / 20 = 1.365

Therefore, the price elasticity of supply for this price increase is 1.365.

The closest option to these values is choice C.

In January the Price of Widgets Was $2