Suppose a decrease in demand causes the price to decrease from $4 to $3 and the quantity to decrease from 1,000 to 700.Using the midpoint method,the elasticity of supply equals
A) 0.81.
B) 1.24.
C) 2.83.
D) 0.18.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

Using the midpoint method formula for elasticity of supply: 
[(Q2-Q1)/((Q2+Q1)/2)]/[(P2-P1)/((P2+P1)/2)] = [(700-1000)/((700+1000)/2)]/[(3-4)/((3+4)/2)] = (-300/850)/(-1/3.5) = 1.235 --> rounded to 1.24. Therefore, the elasticity of supply is 1.24.

Suppose a Decrease in Demand Causes the Price to Decrease