Suppose that when the price of shoe laces goes from $1 to $2 per pair,production increases from 90 million pairs per year to 100 million pairs.Using the mid-point method,the price elasticity of supply would be:
A)6.28.
B)66 percent.
C)10.5 percent.
D)0.16.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the mid-point method as the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity is (100-90)/((100+90)/2) = 10/95 = 0.1053. The percentage change in price is (2-1)/((2+1)/2) = 1/1.5 = 0.6667. The elasticity is 0.1053/0.6667 = 0.158, which rounds to 0.16.

Suppose That When the Price of Shoe Laces Goes from $1