Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is
A) 0.80.
B) 0.89.
C) 1.13.
D) 1.25.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the midpoint method as follows: [(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. Here, the quantity supplied decreases by 25%, so if Q1 is 100 (for simplicity), Q2 is 75. The price decreases from $4,000 to $3,200. Plugging these values into the formula gives an elasticity of 1.13.

Suppose That the Price of African Safaris Fell from $4,000