If the price of oil increases from $80 to $90 per barrel, the quantity supplied increases from 100 to 105 million barrels per day. What is the price elasticity of supply using the midpoint method?
A) 0.41
B) 0.22
C) 0.15
D) 0.05

Question

Quizplus · Accepted Answer

Using the midpoint method formula:

Price elasticity of supply = (percentage change in quantity supplied/percentage change in price)
                           = [(105-100)/((105+100)/2)] / [(90-80)/((90+80)/2)]
                           = (5/102.5) / (10/85)
                           = 0.487 / 0.118
                           = 0.41 (rounded to two decimal places)

Therefore, the price elasticity of supply is 0.41, which means that the quantity supplied of oil is relatively elastic in response to changes in the price.

If the Price of Oil Increases from $80 to $90