An increase in the demand for green tea raises the price of apples from $16 a pound to $20 a pound. As a result, quantity supplied increases by 30 percent. Using the midpoint formula, calculate the value of the price elasticity of supply?
A) 1.35
B) 1.875
C) 2.22
D) 7.5

Question

Quizplus · Accepted Answer

The midpoint formula for price elasticity of supply is:(Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2)where Q1 and P1 are the initial quantity and price, and Q2 and P2 are the new quantity and price.Plugging in the values given in the question, we get:(1.3 - 1) / ((1.3 + 1) / 2) / (20 - 16) / ((20 + 16) / 2) = 1.35Therefore, the price elasticity of supply is 1.35.

An Increase in the Demand for Green Tea Raises the Price