Suppose the current price of barley is $70 per tonne and at that price 100,000 tonnes are grown by a Victorian farmer. If the price of barley rises to $80 and quantity supplied increases to 130,000 tonnes then, using the midpoint method, the price elasticity of supply for barley equals
A) 1.96.
B) 13.33.
C) 26.78.
D) zero.
E) 0.51.

Question

Quizplus · Accepted Answer

The price elasticity of supply (PES) can be calculated using the midpoint method formula: PES = [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Substituting the given values: PES = [(130,000 - 100,000) / ((130,000 + 100,000) / 2)] / [($80 - $70) / (($80 + $70) / 2)] = 30,000 / 115,000 / 10 / 75 = 0.2609 / 0.1333 ≈ 1.96.

Suppose the Current Price of Barley Is $70 Per Tonne