Suppose that the price of a money clip increases from US$0.75 to US$0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.
A) 0.07
B) 1.22
C) 1
D) 0.82

Question

Quizplus · Accepted Answer

The midpoint formula for elasticity is given by the percentage change in quantity supplied divided by the percentage change in price. Using the midpoint formula, the change in quantity supplied is (10,000 - 8,000) / ((10,000 + 8,000) / 2) = 2,000 / 9,000 = 2/9. The change in price is (0.90 - 0.75) / ((0.90 + 0.75) / 2) = 0.15 / 0.825 = 2/11. The price elasticity of supply is therefore (2/9) / (2/11) = 22/18 = 1.22.

Suppose That the Price of a Money Clip Increases from US$0.75