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.
A) 1.22
B) 1.0
C) 0.82
D) 0.07

Question

Quizplus · Accepted Answer

The midpoint formula for elasticity of supply is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the given values: [(10,000 - 8,000) / (10,000 + 8,000)/2] / [($0.90 - $0.75) / ($0.90 + $0.75)/2] = 2,000/9,000 / 0.15/1.325 = 0.2222 / 0.1132 = 1.22.

Suppose That the Price of a Money Clip Increases from $0.75