The following graph shows the supply curve of a product.What is the arc price elasticity of supply of this product when its price changes from $12 to $8?

Question

Quizplus · Accepted Answer

The formula for arc price elasticity of supply is:
% change in quantity supplied / % change in price
Using the midpoint formula, we have:
% change in quantity supplied = [(30-20)/((30+20)/2)] x 100% = 33.33%
% change in price = [(8-12)/((8+12)/2)] x 100% = -33.33%
Therefore, the arc price elasticity of supply is:
33.33% / -33.33% = -1.25 (use absolute value to get 1.25)
Since the question asks for the absolute value of the elasticity, the answer is 1.25.

The Following Graph Shows the Supply Curve of a Product