Holding all else constant,if a pencil manufacturer increases production by 25 percent when the market price of pencils increases from $0.50 to $0.60,what is the price elasticity of supply,using the midpoint method
A)elastic, since elasticity is equal to 1.38
B)inelastic, since elasticity is equal to 1.381
C)inelastic, since elasticity is equal to 0.72
D)elastic, since elasticity is equal to 0.72

Question

Quizplus · Accepted Answer

Using the midpoint method, the percentage change in quantity supplied is 25%, and the percentage change in price is (0.60 - 0.50) / ((0.60 + 0.50) / 2) = 0.10 / 0.55 = 18.18%. The price elasticity of supply is 25% / 18.18% = 1.38, which is elastic.

Holding All Else Constant,if a Pencil Manufacturer Increases Production by 25