A cafeteria is willing to produce 100 cups of coffee when the price is $1 and 150 cups of coffee when the price is $1.30, other things being equal. The price elasticity of supply of coffee is
A) 1.53.
B) 0.67.
C) 0.10.
D) 0.50.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the quantity supplied increases from 100 cups to 150 cups, an increase of 50 cups. The price increases from $1 to $1.30, an increase of $0.30. Therefore, the percentage change in quantity supplied is 50/100 = 0.5, and the percentage change in price is 0.30/1 = 0.3. The price elasticity of supply is therefore 0.5/0.3 = 1.53.

A Cafeteria Is Willing to Produce 100 Cups of Coffee