Suppose that the price of a money clip increases from $0.75 to $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)1.22
B)1.0
C)0.82
D)0.07

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(10,000 - 8,000) / (10,000 + 8,000) / 2] / [(0.90 - 0.75) / (0.90 + 0.75) / 2] = 1.22.

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