Exhibit 5-8 Supply and demand curves for good X

-In Exhibit 5-8, the price elasticity of supply for good X between points Y and E is:
A) 1/5 = 0.20.
B) 5/3 = 1.66.
C) 3/5 = 0.60.
D) 1.

Question

Exhibit 5-8 Supply and demand curves for good X
​ 
-In Exhibit 5-8, the price elasticity of supply for good X between points Y and E is:
A) 1/5 = 0.20. 
B) 5/3 = 1.66. 
C) 3/5 = 0.60. 
D) 1.

Quizplus · Accepted Answer

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Between points Y and E, the change in quantity supplied is 12-8=4 and the change in price is 3-5=-2. Using the midpoint formula, we can calculate the percentage changes as:
%ΔQs = (4/[(12+8)/2]) * 100% = 20%
%ΔP = (-2/[(3+5)/2]) * 100% = -25%
Therefore, the price elasticity of supply is:
|(20%)/(−25%)| = 0.8
But we need to take the absolute value of the elasticity, so it is 0.8 which can be simplified to 3/5 or 0.60. Therefore, the correct answer is C.

Exhibit 5-8 Supply and Demand Curves for Good X